Satyam muscle for TechM

The Satyam Computer takeover enabled Tech Mahindra (TechM) to diversify from a one-client, one-vertical company to become India's fifth largest listed IT services player. It also came as a blessing as TechM's key client - British Telecom (BT) faced slowdown. While BT's share in revenues has slipped from 65 per cent in 2009 to 13 per cent currently (and remains under pressure), the non-BT telecom business continues to witness healthy traction.

As TechM paid off legal dues and cleaned the accounts of the scam-tainted company, it also focused on retaining Satyam's clients. At the time of merger, Mahindra Satyam (Satyam Computer) had attained stability and posted revenue of Rs 7,693 crore and net profit of Rs 1,324 crore, representing a year-on-year growth of 20.3 per cent and 10.7 per cent, respectively, in FY13. Its stock had also seen re-rating. TechM now plans to grow revenues from BFSI and manufacturing verticals.

Post-merger, revenues and net profit of TechM grew manifold from Rs 4,465 crore and Rs 893 crore in FY09 to Rs 14,132 crore and Rs 1,756 crore in FY13, respectively (CAGR of 33.3 per cent and 18.4 per cent). While standalone TechM was valued at 7.6 times FY09 earnings, it is now valued at 11 times FY15 estimated EPS. Analysts say the re-rating will continue as they estimate TechM's revenues to grow at 15-16 per cent CAGR in the next 2-3 years, and margins to rise.