Incremental stability for Satyam driven by new deal signups, stability with existing customers and stable pricing would translate into better valuation for Tech Mahindra.
JP Morgan in a Report said,
estimate Tech Mahindra FY11 EPS at Rs 95 – with Rs 45 contribution from Satyam. Tech Mahindra’s core business is expected to show muted growth as BT-related business continues to be under pressure. However, non-BT business has done well in the last 2 quarters on the back of an improving macro-environment and we expect TM to benefit from its strong expertise in the Telecom Service provider space.
We have kept our estimates unchanged for Tech Mahindra’s core business, but reduce consolidated FY11/12 estimates on the back of our new Satyam estimates. We estimate flat earnings from Tech Mahindra’s core telecom business in FY11 as BT weakness is offset by non-BT business. The projected upside in FY11 is driven by consolidating Satyam earnings based on Tech Mahindra’s stake of 43%.
June-10 PT of Rs 1,200 is based on 11x 1 year forward P/E for Tech Mahindra core business and 12x 1 year forward P/E for Satyam.
