Tech Mahindra All set to join the Big league PhillipCapital (India) Pvt. Ltd. IT Services: Initiating Coverage Formidable force post Satyam integration; superior return profile Post integration with Satyam, Tech Mahindra (TechM) has transformed into a full range IT service provider, with significant presence in all key geographies and verticals. We expect the combined entity to benefit from TechM’s expertise in Telecom and Satyam’s presence in manufacturing and BFSI space. The combined entity has a strong presence in Europe, which we expect to be the next frontier for the Indian IT Services sector. Overall, we expect TechM to report topline CAGR of 17% over FY13‐15 and maintaining average EBITDA margins of ~22% over the period. The PAT is expected to grow by 31% over this period, enabling the company to deliver average ROE of ~25%. Strong presence in Europe to boost growth, as it opens up to outsourcing Our analysis of the top 80 companies (by capex spend) in Europe, in each of the four sectors (telecom, manufacturing, BFSI and retail) reveals that 21 of those have never outsourced and another 35 have outsourced, but not offshored their IT development work. That, in our opinion, is a testimony to the potential that the region represents, for the Indian IT companies. TechM has been one of the most active Indian IT vendor in the European region, with over 33% of its revenues coming from EU. Its growth over the last six quarters too, has been much ahead of peers. We expect the trend to continue, and the company to benefit immensely from more companies opening up to outsourcing, on the back of cost pressures and regulatory changes. Domain expertise in Telecom to drive growth momentum TechM has always had strong expertise in the Telecom domain. Today, it is one of the preferred IT vendors for telecom companies. It has also been able to add key clients (eg AT&T, Verizon) to its portfolio. The division has grown by CQGR of 8.9% (excl BT) over the last six quarters. We expect higher momentum of deals in the telecom space, driven by regulatory changes and advent of new technology (smartphone, mobility, social media) and TechM to grab larger part of the same. Multiple avenues for margin expansion TechM has a significantly lower blended pricing level for services provided as compared with the peer average of $38/hr. Along with utilization levels (currently at 77%), we see the company with significant headroom for margin expansion over the next few years. Bundled services to support growth in other verticals In order to enrich its portfolio, TechM has been bundling its Communications & Networking services with Enterprise Solutions – an expertise gained from Satyam. The company intends to target multiple CXOs of an organisation and boost business from strong client mining. We expect the strategy to payoff, as it has for HCL Tech. Attractive valuations – definite case for FURTHER re‐rating On our current estimates, the stock is trading at 15x FY14 and 13x FY15 earnings. While the stock has run up significantly over the last six months (6m 77%, 12m 90%), we believe the stock still trades at a significant discount to its peers (top 4). As stated before, post integration with Satyam, TechM has transformed into a full range IT service provider, with significant presence in all key geographies and verticals and reduced client concentration. Hence we believe it should get a multiple in‐line with the top 4, especially Wipro and HCL Tech. We value the company at 14x avg FY15‐16 earnings (30% premium to its historical average, but in‐line with our multiple for Wipro and HCL Tech). That gives us a price target of Rs2150, representing 18% upside from current level. We initiate with BUY.
Please refer to Disclosures and Disclaimers at the end of the Research Report.
27 December 2013
BUY
TECHM IN | CMP Rs 1827 TARGET Rs 2150 (+18%) Company Data O/S SHARES (MN) : MARKET CAP (RSBN) : MARKET CAP (USDBN) : 52 ‐ WK HI/LO (RS) : LIQUIDITY 3M (USDMN) : FACE VALUE (RS) :
233 426 6.9 1872 / 895 33.4 10
Share Holding Pattern, % PROMOTERS : FII / NRI : FI / MF : NON PROMOTER CORP. HOLDINGS : PUBLIC & OTHERS :
36.5 33.7 15.0 1.9 12.8
Price Performance, % ABS REL TO BSE
1mth 6.4 4.1
3mth 39.1 32.9
1yr 99.9 90.4
Price Vs. Sensex (Rebased values)
260 220 180 140 100 60 Apr‐10 Apr‐11 Apr‐12 Apr‐13 Tech Mahindra BSE Sensex
Source: Bloomberg, Phillip Capital Research Other Key Ratios Rs bn FY14E FY15E FY16E Net Sales 188.3 223.5 261.3 EBIDTA 41.1 47.7 55.9 Net Profit 28.7 33.5 39.5 EPS, Rs 121.0 141.0 166.3 PER, x 15.1 13.0 11.0 EV/EBIDTA, x 9.3 7.7 6.2 P/BV, x 4.0 3.1 2.4 ROE, % 26.5 23.9 22.2 Source: Phillip Capital India Research Vibhor Singhal (+ 9122 6667 9949)
[email protected] Varun Vijayan (+ 9122 6667 9992)
[email protected]
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Key Charts in the report Outsourcing opportunity in the EU region remains huge Of the 80 largest spenders in Euro Stoxx 600 across 4 sectors in Europe: 7 Telecom, 4 Manufacturing, 2 BFSI and 8 Retail companies have never outsourced. Of the remaining, 6 Telecom, 11 Manufacturing, 8 BFSI and 10 Retail companies have outsourced, but not offshored.
IT outsourced
Only Backoffice
20 18
Never outsourced
2
4 7
16
8
14
8
12 10
11
6
8
10
6 4 2 0 Telecom
Manufacturing
BFSI
Retail & Travel
The who’s who of the potential targets in Europe (in order of capex) Telecom Vodafone Group PLC Deutsche Telekom AG Telefonica SA Orange SA Telecom Italia SpA BT Group PLC Vivendi SA KPN NV Swisscom AG Telenor ASA TeliaSonera AB Portugal Telecom SGPS SA Belgacom SA Telekom Austria AG Telefonica Deutschland Ericsson Eutelsat Communications SA SES SA Hellenic Telecom Tele2 AB Never Outsourced
Manufacturing Volkswagen AG Fiat SpA Daimler AG BMW Peugeot SA Renault SA EADS Siemens AG Continental AG CGE Michelin Volvo AB CNH Industrial NV Valeo SA Safran SA Finmeccanica SpA Alstom SA MAN SE Scania AB BAE Systems PLC Thales SA Not offshored
BFSI Exor SpA Societe Generale SA Lloyds Banking Group Banco Santander SA Royal Bank of Scotland BNP Paribas SA Allianz SE Credit Suisse Group UniCredit SpA UBS AG KBC Groep NV DNB ASA Barclays PLC Wendel SA ING Groep NV Credit Agricole SA AXA SA Aviva PLC Vienna Insurance Prudential PLC
Retail & Travel Deutsche Lufthansa AG Christian Dior SA Intl Consolidated Airlines Louis Vuitton Deutsche Post AG Inditex SA L'Oreal SA Hennes & Mauritz AB Cie Financiere Richemont Marks & Spencer Adidas AG Kering Firstgroup PLC Ryanair Holdings PLC Henkel AG & Co KGaA Kingfisher PLC Swatch Group AG The easyJet PLC Vopak NV Luxottica Group SpA
Revenue CQGR for EU over last 6 quarters Capgemini IBM
Revenue CQGR for Telecom over last 6 quarters
‐3.1
Capgemini ‐1.6
Wipro HCL Tech
IBM 2.1
‐6.7
Wipro
0.1
4.9
Infosys
5.7
TCS
5.6
TechM ex BT TechM
‐1.5
Infosys TCS 8.5
‐0.6 2.0
TechM ex BT
4.3
TechM
Source: PhillipCapital India Research
– 2 of 21 –
8.9 5.6
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Investment Thesis Our investment thesis on TechM rests on the following pillars: 1) Significant room for margin expansion TechM has a significantly lower blended pricing level for services provided as compared with the peer average of $38/hr. Along with utilization levels (currently at 77%), we see the company with significant headroom for margin expansion over the next few years. We however, have been conservative and have taken price‐hike and utilization‐levels in‐ line with the industry. Overall, we expect TechM to report topline CAGR of 17% over FY13‐15 and maintaining average EBITDA margins of ~22% over the period. The PAT is expected to grow by 31% over this period, enabling the company to deliver strong average ROE of ~25%. 2) Attractive valuations – definite case for FURTHER re‐rating On our current estimates, the stock is trading at 15x FY14 and 13x FY15 earnings. While the stock has run up significantly over the last six months (6m 77%, 12m 90%), we believe the stock still trades at a significant discount to its peers (top 4). We note that post integration with Satyam, the company has transformed into a full range IT service provider, with significant presence in all key geographies and verticals. Its client concentration too has decreased considerably, and hence we believe it should get a multiple in‐line with the top 4. We believe a multiple in‐line with Wipro and HCL is definitely justified, and expect the rerating to happen over the next few quarters. 3) Strong presence in Europe to boost growth, as the region opens up to outsourcing Our analysis of the top 80 companies (by capex spend) in Europe, in each of the four sectors (telecom, manufacturing, BFSI and retail) reveals that 21 of those have never outsourced and another 35 have outsourced, but not offshored their IT development work. That, in our opinion, is a testimony to the potential that the region represents, for the Indian IT companies. TechM has been one of the most active Indian IT vendor in the European region, with over 33% of its revenues coming from EU. Its growth over the last six quarters too, has been much ahead of peers. We expect the trend to continue, and the company to benefit immensely from more companies opening up to outsourcing, on the back of cost pressures and regulatory changes. 4) Domain expertise in Telecom to drive growth momentum Having started as a developer for BT, TechM has always had strong expertise in the Telecom domain. Today, it remains one of the preferred IT vendors for the companies in this domain. It has also been able to add key clients (eg AT&T, Verizon) to its portfolio. The division has grown by CQGR of 8.9% (excl BT) over the last six quarters. We expect higher momentum of deals in the telecom space, driven by regulatory changes and advent of new technology (smartphone, mobility, social media) and TechM to grab larger part of the same. 5) Bundled services to support growth in other verticals In order to enrich its portfolio, TechM has been bundling its Communications & Networking services with Enterprise Solutions – an expertise gained from Satyam. The company intends to target multiple CXOs of an organisation and boost business from strong client mining. We expect the strategy to payoff, as t has for HCL Tech. 6) Being over‐ambitious might pose risk TechM management has set an internal target of $5bn topline by FY16. While they maintain it remains a wishful ambition, and not a target, we note that the same might lead to the company becoming too aggressive and compromising on the margins and/or looking for inorganic avenues of growth. Either of the two pose a significant risk to TechM’s earnings and the growth story.
– 3 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Robust growth, leading to superior return profile TechM , post integration of Satyam, has transformed into a full range IT service provider, with presence in all verticals across multiple geographies. It has a fairly distributed market with strong growth from its established geographies namely US, Europe and emerging markets such as Australia, Middle East and LATAM. The company has developed more than 25 platforms and products to support its 576 active clients. It has also forayed deeply into the key domains of SMAC – esp Mobility and Analytics – which we expect to be the growth drivers for IT companies over the next decade. Over the last 6 quarters, TechM witnessed strong growth of 5.6% CQGR aided by non‐ organic business growth, against a peer average of 1.8%. We expect TechM to grow at a CAGR of 17% over FY13‐15, maintaining average EBITDA margins of ~22% over the period. The PAT is expected to grow by 31% over this period, enabling the company to deliver strong average ROE of ~25%. Robust growth expected in $ revenues
Net profit to grow in‐line with the reveneus
US$ revenues
Growth %
4,500
140%
4,000
120%
3,500
100%
Growth %
80%
140%
35
120% 100%
60% 40%
0%
5
‐20%
‐20%
0
‐40%
FY16E
FY15E
FY14E
0%
FY13
FY16E
FY15E
FY14E
FY13
FY12
FY11
FY10
FY09
0
10
FY12
500
20%
20%
FY11
1,000
40%
15
FY09
1,500
60%
20
FY10
2,000
80%
25
Rs Bn
2,500
160%
40
30
3,000
US$ mn
PAT
45
Source: PhillipCapital India Research
EBITDA Margin to remain stable
Stable return profile
EBITDA
60
Margins %
31% 29%
50
ROE %
60%
ROCE %
60%
50%
27%
Rs Bn
40
25% 23%
30
21%
20
50%
40%
40% 30% 30% 20%
20%
19%
– 4 of 21 –
FY16E
FY15E
FY09
Source: PhillipCapital India Research
FY14E
0%
FY13
0%
FY16E
FY15E
FY14E
FY13
FY12
FY11
FY10
FY09
10%
FY12
15%
0
10%
FY11
17%
FY10
10
70%
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Significant headroom for margin expansion In addition to the benefit of rupee depreciation, which is applicable to all Indian IT vendors, we see TechM with significant headroom for margin expansion: 1) Lower pricing levels – the company charges significantly lower rates than the top 4 2) Low utilisations – have come down to 77% from peak of 80% 3) Further upside in value chain in new businesses. TechM has a significantly lower blended pricing level for services provided as compared with the peer average of $38/hr. We believe that there is higher chance of increase in blended pricing levels on account of specialised value added services which would be a tailwind for margin expansion. Furthermore, migration to non‐linear revenue models should also yield higher margins. Utilizations can provide headroom for margin expansion.. …. Along with pricing, which remains far below peers (Top 4) 81%
80%
Blended pricing levels
Utilisations %
80%
Peer average
39 37
80%
79%
35
79% 78%
78%
33
78%
78% 78%
77%
US$/hr
79%
31 29
77%
27
77%
25
76%
23 21
76% Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q1FY13
Q2FY14
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Source: PhillipCapital India Research
TechM had a great success in turning around all of its recent acquisitions mainly – Satyam, Hutchison Global, Comviva and vCustomer, which had lower margins than the company average. With new contract wins through these acquisitions and with better pricing profile, we believe that further improvement in margins is imminent.
Valuation Table Companies TCS Infosys Wipro HCL Tech Tech Mahindra Persistent KPIT
CMP Rs 2,094 3,530 550 1,246 1,827 986 172
M‐Cap Rs bn 4,098 2,017 1,354 881 433 39 32
_______ROE (%)______ FY14E FY15E 36.1 35.3 21.7 21.8 24.0 23.2 31.0 27.5 26.5 23.9 21.7 22.5 21.8 21.3
______P/E (x)______ FY14E FY15E 22.2 17.5 19.8 16.6 17.6 15.4 15.2 13.8 15.1 13.0 15.4 12.3 11.8 9.6
Source: PhillipCapital India Research Estimates
– 5 of 21 –
______P/BV (x)______ FY14E FY15E 8.0 6.2 4.3 3.6 4.2 3.6 4.7 3.8 4.0 3.1 3.4 2.8 2.6 2.0
_____EV/EBITDA (x)____ FY14E FY15E 16.3 13.5 13.2 10.8 13.0 11.3 10.1 8.9 9.5 7.9 9.4 7.5 7.6 6.4
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
All set to exploit the next frontier – Europe Our recent interactions with industry experts and analysis on IT spending data from TPI sources suggests that European companies, which were hitherto reluctant to outsourcing, are opening up for Infrastructure, BPO and Apps related outsourcing to local and foreign vendors. Due to challenges faced from changing regulations & policies in Eurozone and declining fixed cost recovery, most of the large industries are forced to choose low cost ‐ high quality technology services from providers, especially from the low‐cost regions. Recent first time outsourcers from EU According to Ovum Research, ~$47bn of existing outsourced contracts will come up for renewal by 1H2015: • Government projects (TCV:~$12bn) • Manufacturing (~$7.9bn), • Services (~$5.2bn) • Telecom (~$4.4bn)
Date 10‐Jan‐13 20‐Aug‐13 10‐Sep‐13 10‐Sep‐13 3‐Oct‐13 19‐Dec‐13
Companies Luxottica Finmeccanica Scandinavian Airlines Continental KBC Group Orange
Sector Retail Aerospace Airlines CV Manufacturer Bank Telco
Outsourced to HP Northgate Arinso TCS IBM Cognizant iGate
Source: PhillipCapital India Research
Compliance and policy issues to force Euro companies for more outsourcing European industries that are directly linked to policy regimes, are facing multiple challenges in transforming their business processes inline with the regulatory requirements of respective regions. Complete technology transformation requires large expertise and methodologies which are highly capital intensive of its own accord, which make vendors like TechM a partner of choice.
Largely untapped market Analysing more on European companies, we found that out of Top 80 large companies (on CAPEX spends) in Euro region, 21 have never outsourced their IT operations & technology infrastructure to local outsourcing vendors, let alone to offshoring IT companies. Furthermore, of the remaining 59 companies, 35 have outsourced, but have never offshored their IT development work. Outsourcing opportunity in the EU region remains huge IT outsourced
Only Backoffice
20 18
Of the 80 largest spenders in Euro Stoxx 600 across 4 sectors in Europe: 7 Telecom, 4 Manufacturing, 2 BFSI and 8 Retail companies have never outsourced. Of the remaining, 6 Telecom, 11 Manufacturing, 8 BFSI and 10 Retail companies have outsourced, but not offshored.
16
4
Never outsourced
2
7
8
14
8
12 10
6
11
8
10
6 4 2 0 Telecom
Manufacturing
BFSI
Retail & Travel
Source: PhillipCapital India Research
Put together, we see these Never Outsourced + Never Offshored category companies, as the target set from the EU region, for the Indian IT vendors. The magnitude of the opportunity – 56 out of 80 companies with total annual capex spend of $128bn (estimated annual IT spend ~$38bn) is clearly huge.
– 6 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
The who’s who of the potential targets in Europe (in order of capex) Telecom Vodafone Group PLC Deutsche Telekom AG Telefonica SA Orange SA Telecom Italia SpA BT Group PLC Vivendi SA KPN NV Swisscom AG Telenor ASA TeliaSonera AB Portugal Telecom SGPS SA Belgacom SA Telekom Austria AG Telefonica Deutschland Ericsson Eutelsat Communications SA SES SA Hellenic Telecom Tele2 AB Never Outsourced
Manufacturing Volkswagen AG Fiat SpA Daimler AG BMW Peugeot SA Renault SA EADS Siemens AG Continental AG CGE Michelin Volvo AB CNH Industrial NV Valeo SA Safran SA Finmeccanica SpA Alstom SA MAN SE Scania AB BAE Systems PLC Thales SA Not offshored
BFSI Exor SpA Societe Generale SA Lloyds Banking Group Banco Santander SA Royal Bank of Scotland BNP Paribas SA Allianz SE Credit Suisse Group UniCredit SpA UBS AG KBC Groep NV DNB ASA Barclays PLC Wendel SA ING Groep NV Credit Agricole SA AXA SA Aviva PLC Vienna Insurance Prudential PLC
Retail & Travel Deutsche Lufthansa AG Christian Dior SA Intl Consolidated Airlines Louis Vuitton Deutsche Post AG Inditex SA L'Oreal SA Hennes & Mauritz AB Cie Financiere Richemont Marks & Spencer Adidas AG Kering Firstgroup PLC Ryanair Holdings PLC Henkel AG & Co KGaA Kingfisher PLC Swatch Group AG The easyJet PLC Vopak NV Luxottica Group SpA
Source: PhillipCapital India Research
TechM has always had a strong presence in EU region, on the back of its strong relationship with BT. With Satyam being strong in ES, esp in manufacturing domain, the combined entity today now stands a formidable force in the region. EU forms 33% of total revenues for TechM, and has grown at CQGR of 4.3% (8.5% excl BT) over the last six quarters – much higher than Indian peers, as well as the local giant Capgemini. Recent contract wins for TechM, from the EU region Date 13‐Sep‐13 5‐Aug‐13 24‐Jul‐13 6‐Jun‐13 5‐Sep‐12
Company Volvo BASE; Subsidiary of KPN UBS Fund Services Bridgestone Europe KPN, Dutch
Deal Span 3 years 5 years 5 years Multi Year 5 years
Contract Value $40mn $50‐70mn NA Multi million $100mn
Source: PhillipCapital India Research
European revenues – CQGR for the past 6 quarters – TechM significantly ahead Capgemini ‐3.1 IBM
‐1.6
Wipro HCL Tech
2.1 4.9
Infosys
5.7
TCS
5.6
TechM ex BT TechM Source: PhillipCapital India Research
– 7 of 21 –
8.5 4.3
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Domain expertise to aid growth in Telecom domain According to data from IDC and research firms such as Gartner and Forrester, the global telecom industry has crest‐fallen to its lowest in growth in the past 5 years. Recession in the global economies took a toll on the industry, with overall growth flattening out globally. While the data usage has been stable, the growth factors expected by the industry experts haven’t played out for the industry. In our opinion, the following developments have further aggravated the decline: • Explosion in new devices such as smartphones and tablets • Everchanging policies in respective economies • Revolution in technology from 2G to a 4G However, the recent data indicates the industry’s attempt to enhance their technologies and monetise the communication revenues across regions. Going forward, we believe that TSPs in other geographies would also capitalise in IT spends more on improving their service horizons and would introduce applications similar to Instant Messaging and Whatsapp to capture its lost marketshare.
SMAC technologies to remain the focus for growth The use of Mobility by corporates has been picking up significantly over the past few years. Research firms such as Gartner and Forrester suggests that Mobility (amongst SMAC) would pickup strong momentum in the coming years. Over next three years, the industry expects Mobility to grow at CAGR of 15%+ led by demand from the enterprises. Enterprise SMAC services to grow by 20% CAGR during FY13‐15E… Cloud IT Services
Social Mobility and Analytics
120 107
Revenues, US$ bn
100 80 60
72 50
40 37 20 0 2013
2015E
2013
2015E
Source: PhillipCapital India Research
Introduction of smart devices such as tablets & smartphones and the advanced network access enhances the ability to manage different processes in an industry offline. Employers and employees could be live 24/7 and participate in any operations on‐the‐ go. We note that this transition in technology interface is gaining significant traction in many industries, including manufacturing, BFSI and retail. We also note that leading telecom companies have been losing revenues to an unexpected competitor – Apps. A survey indicated that ~8bn ‘Happy New Year’ messages were exchanged on the New Year’s eve last year, on WhatsApp. In its absence, all these would have contributed to SMS revenues for the TSPs. On similar front, VOIP services like Viber and Skype are eating into the voice revenues of the TSPs, while availability of public wi‐fi connection reduces the scope of data revenues. The above developments have forced the TSPs across the globe, to appoint software vendors to develops applications that can help them capture the lost revenues to these
– 8 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
‘competitors’. As more TSPs join the bandwagon, we expect vendors like TechM to benefit the most, from their domain expertise.
Leading telecom solutions vendor in Indian IT space TechM has the largest telecom practice amongst Indian IT peers with annual revenues of ~US$1.2bn. During FY09‐13, TechM’s telecom revenues grew at a CAGR of 5% while the peer average stood at 3%. British Telecom forms a major part of TechM’s telecom practice (with ~32% of its telecom revenues in FY13), which has declined at a rate of 10% CAGR during FY09‐13. However TechM with its strong presence in US and other regions has maintained pace ahead of its peers. Telecom revenue CAGR for last 5 years Capgemini IBM
Capgemini
3.1
IBM
‐2.3
Wipro Infosys
CQGR for last 6 quarters
0.1
Infosys
‐3.9
‐0.6
TCS
6.9
TechM exBT TechM
‐6.7
Wipro
3.5
TCS
‐1.5
19.0
2.0
TechM ex BT
8.9
TechM
5.2
5.6
Source: PhillipCapital India Research
Excluding BT, TechM’s revenues grew at a CAGR of 19% over the last five years and continued to grow at a healthy rate of 9% (CQGR) in the last 6 quarters, while the peer average CQGR stood at ~2%. AT&T and Verizon ‐ two large clients in US ‐ put together currently forms a large portion of its telecom practice. We believe that at a current growth rate of 6%, TechM would achieve strong marketshare and will start competing with the MNC giants such as IBM. We also believe that with the addition of enhanced portfolio of Enterprise Solutions, growth from the new businesses would compensate the falling BT business in the near future. Declining dependence on BT (Telecom revenues) TechM exBT
1,600
BT rev 26%
1,400 1,200
US$ mn
1,000
356 64% 460
800 600
596
575
431
384
472 993
400 200
339
410
FY08
FY09
666
726
FY11
FY12
822
504
0 Source: PhillipCapital India Research
– 9 of 21 –
FY10
FY13
LTM '14
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Far ahead of the Indian peers Peer comparison revealed that TechM trumps the telecom practice of the Top 4 and MNCs. • TCS (second largest in Telecom after TechM) with ~US$1.1bn (10% to its revenues) has alluded to facing challenges in ramping up its telecom business, despite having large TSPs like Telenor in their clientele. • Infosys’ telecom business contributes to 9% of its overall revenues (US$720mn), and has seen a declining trend (‐1% CQGR over last 6 quarters), owing to declining BT share. • Wipro has rather a small telecom practice (with US$560mn, ~9% contribution) largely providing IMS solutions for the TSPs globally. TechM’s dominance in Telecom space – much ahead of Indian peers Telecom Revenue 2000
% of total rev 9,200
1800 1600
US$, mn
1400 1200
45% 46% 1,206
1000
40% 35% 37%
1,138
30% 910
822
800
25% 20%
719 560
600
15%
400
10% 9%
5% 6%
Capgemini
9%
IBM
10%
Wipro
TCS
TechM ex‐ BT
TechM
10%
Infosys
200 0
50%
0%
Source: PhillipCapital India Research
We believe that, going forward, TechM would be able to achieve significant growth (current rate of 9% CQGR, ex‐BT) as compared to peers with addition of large TSPs & high quality engagements to its existing clientele. It would start competing with the likes of IBM, who has a ~US$9bn annual revenue run rate for communications space with a declining trend of 7% CQGR in last 6 quarters.
– 10 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Merger with Satyam leads to a formidable profile
TechM ‐ Pre merger clientele – FY13
The combination of TechM and Satyam, with least overlap of clientele, places the company in a strong position to acquire large outsourcing contracts across varopus domains. TechM’s expertise in Mobility, Networking & SI and Satyam’s expertise in ES, Engineering Services and BPO brings up the value of the combined entity to high levels of recognition among global players. Also the combination reduces the concentration risk of Telecom as a sole vertical for TechM, to a multitude of verticals with strong presence in Manufacturing and BFSI. TechM with its end to end solutions at lower pricing as compared to its peers, along with leading brand value and addition of new technology services would become a key to its business transformation. We believe that combining its expertise in networking and communication technology with enterprise and engineering solutions (as bundled services), would enable it to gain more marketshare against its Indian and MNCs peers. Post merger clientele – FY13 Top client, 13%
Non Top 10 clients, 19% Top client, 30%
Top 6‐10 clients, 9%
Top 2‐5 clients, 24%
Non Top 10 clients, 50%
Top 2‐5 clients, 42%
Top 6‐10 clients, 13%
Source: PhillipCapital India Research
TechM Pre merger vertical concentration – FY13
Post merger verticals concentration – FY13
Others, 3%
Others, 13%
Telecom, 97%
Telecom, 48%
BFSI, 9% BT, 13% TME, 12%
Manufacturin g, 19%
BT, 30% Source: PhillipCapital India Research
– 11 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Beyond Telecom – catching up fast Although, telecom still contributes over 47% of its total revenues, TechM has significantly improved in other verticals such as Manufacturing, BFSI & TME. Satyam offers Enterprise Solutions with verticals such as Manufacturing, BFSI and TME as major focus. In the past 6 quarters, these verticals combined have grown by 4.2% ‐ close to the company average. Recent deal wins from non‐telecom verticals Date
Company
Deal Span
Contract Value
9‐Nov‐13 13‐Sep‐13 1‐Aug‐13 1‐Aug‐13 24‐Jul‐13 6‐Jun‐13
Perpetual, FS firm Volvo Schahin Petroleo Leading bank in Brazil UBS Fund Services Bridgestone Europe
Multi year 3 years Multi year Multi year 5 years Multi Year
NA $40mn $50‐70mn $50‐70mn NA Multi million
Source: PhillipCapital India Research
Segmental revenue contribution – FY13 1,400
Verticalwise CQGR comparison for the past 6 quarters…
Segmental revenue % contribution
46%
CQGR for 6 qtrs
50% 45%
1,200
40%
US$ mn
1,000
35% 30%
800 600
1,206
7.5
20% 12%
400 200
4.3
25%
19%
493 329
283
5.6
15%
11% 7%
6%
171
151
0
4.3
10%
2.6
5%
0.2
0% Telecom Manufact TME
BFSI
Retail & Others travel
Telecom
Manufact
TME
BFSI
1.1 Retail & travel Others
Source: PhillipCapital India Research
We note that many of TechM’s recent large deal wins from Europe and EMs are predominantly from Manufacturing & Utilities sector. The company has acquired ~US$350mn of TCV from ex‐Telecom verticals during the period of YTD FY14.
– 12 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Bundled Services – The way forward TechM has more than two decade long experience in telecom services. With multiple acquisitions in the recent past, it has been able to provide high value services with enterprise connectivity solutions, mobility and value added services for industries besides telecom. In order to enrich its portfolio, the company has been bundling its Communications & Networking services with Enterprise Solutions – an expertise gained from Satyam. While the discretionary spend from most of the industries has been declining, TechM has been adjoining the Application services and Infrastructure services to provide seamless end to end solutions for their clients. On the back of the above, we believe that TechM’s strategy to bundle services not only attract clients but also is advantageous for resource allocation and other costs related to the services provided.
Will it work ? It did for HCL Tech … HCL Technologies, a closer peer in terms of revenues, has adopted a similar strategy of bundling IMS services with Enterprise Solutions, which has given them an edge in tackling large contracts requiring end to end solutions & services. The ‘Business Services’ segment had shown a promising growth in its deal win ratio from 40% to 65% in the recent quarters. While its growth in recent quarters has been led by IMS division, it has, nonetheless, gained significant traction in other horizontals. We expect the same strategy to work for TechM, where it has been bundling its Communications & Networking services with Enterprise Solutions. Its expertise in the telecom space remains unparalleled, and the same would help the company mine further into its existing clients. What has worked for HCL Technologies so far, should also work for Tech Mahindra, in our opinion. Structure of Strategic Delivery Focus TECHNOLOGY TRENDS Cloud Computing
Enterprise Mobility
Big Data
Social Media
Internet of Things
DIGITAL INFRASTRUCTURE
Connected Devices
Converged Content
Seamless Connected Experience Connected Channels
Connected Network
Connected Applications
Source: Company, PhillipCapital India Research
– 13 of 21 –
XaaS
Augmented Reality
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
In our recent interactions with the management, they emphasised their intent to target multiple CXOs of an organisation and boost business from strong client mining. TechM has invested heavily to create a strong S&M team for targeting each department of a client organisation, separately and collectively. The six CXO target strategy
Domain Leadership
Strategic Account Focus
(competencies, NMACS, innovation)
COO
CMO
CFO
SIX PILLARS CIO
CTO
CSO
Execution Stamina
Cross Leverage Enterprise Source: Company, PhillipCapital India Research
As stated before, we expect TechM to focus on building their portfolio by bundling the two competencies – Telecom + Enterprise Solutions while approaching large as well as SME clients. Going forward, we expect this to become a trend for the company enhancing its brand value, while the overall cost of services would come down. TechM also intends to improvise their portfolio by developing its expertise across the disruptive technologies ‐ SMAC, while utilising their existing capabilities in business solutions. Characteristics of bundling competencies Business Requirement • Seamless access of enterprise application using Any Device, Any Network with Any Ownership, Used Any Where • Differentiated Application Access based on User Role, Device Type and Context • Intelligent adaption to customer behavior
Solutions Delivered • Intelligent Application Middleware Platform integrated with customer’s infrastructure. • Support for multi‐domain applications including best‐in‐class features: • BYOD and Mobility • Security and Policy Enforcement • Real Time Audio/Video Collaboration • Intelligent Applications Mgmt
Value delivered • Speed and Scale • Enterprise Integration • Reduced Security Risks
Enterprise Competencies
Telecom Competencies
• EBS
• Networks
• Engineering Services
• Mobility
• IMS
• Security
Source: Company, PhillipCapital India Research
– 14 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Focus on S&M to lead to better client mining TechM has increased its S&M spend (as % of sales) significantly over the last few years, and is today, behind only TCS in that regard. The characteristics of Satyam being a high quality service provider and TechM with a strong and incentivised sales force with robust client mining ability, gives a strong visibility in revenues. S&M spends for TechM have been high amongst the peers TCS Wipro
22%
Tech Mahindra HCL Tech
as a % of sales
20% 18% 16% 14% 12% 10% FY08
FY09
FY10
FY11
FY12
FY13
Source: PhillipCapital India Research
Annualized revenue per client 12
10.9
10
9.3
8.7
US$ mn
8 6.4 6
5.1
4 2 0 TCS
Infosys
Source: PhillipCapital India Research
– 15 of 21 –
HCL Tech*
Wipro
TechM
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Inorganic growth gaining momentum TechM’s business acquisitions in high end IT services & BPO space, have gained momentum in FY13. It acquired Hutchison Global and Comviva Tech for a combined value of US$135mn at a valuation of 0.5x sales and 0.7x sales respectively. Hutchison Global, which leads in Customer Lifecycle Management for Telecom, contributed revenues of US$175mn in FY13 and had a CQGR run rate of 10% for the last 4 quarters. Comviva a high‐end Value Added Services and Mobility products vendor for Telecom, contributed to US$70mn of revenues in FY13, with a CQGR run rate of 4% since acquisition. Mergers & Acquisitions Company Acquired Axes Technologies (India) Pvt Ltd Motorola Inc. ‐ Under CanvasM (JV) iPolicy Networks Pvt Ltd Satyam Computers vCustomer International Hutchison Global Services Comviva Complex IT Type Approval Lab
Country India US Indian Sub India India Australia MNC Brazil Sweden
Date 17‐Nov‐05 2‐Aug‐06 18‐Jan‐07 5‐May‐09 7‐Mar‐12 4‐Sep‐12 17‐Sep‐12 15‐Feb‐13 14‐Apr‐13
Value US$54mn NA NA US$640mn US$27mn US$87.1mn US$48mn US$25mn NA
% Stake 100% Wholly owned 100% 43% 100% 100% 51% 51% 100%
Type of Services Telecom Products VAS Products and solutions Network Products Enterprise solutions BPO High end BPO Services VAS SAP Testing platform
Valuation ‐ ‐ ‐ 0.3x sales ‐ 0.5x sales 0.7x sales 0.8x sales ‐
Prev Yr Rev ‐ ‐ ‐ US$1.9bn ‐ US$175mn US$70mn ~60mn ‐
Source: Company, PhillipCapital India Research
It also acquired Type Approval Labs from Sony in 2013 (acquisition price remains undisclosed) to enhance its testing services. Through Mahindra Satyam, TechM acquired 51% stake in Complex IT, a SAP solutions vendor in Brazil, to foray into LATAM for tapping a potential $1bn SAP market. Post the recently announced merger, Mahindra Engineering services (MES) would strengthen TechM’s high‐end consulting and engineering services for the manufacturing vertical (mainly Aerospace and Auto) and will contribute to a revenue of ~US$40mn+ annually. We note that there are financial risks in managing large acquisitions done in a short span. However, we believe that TechM, with expected operating cash flow of Rs73bn throughout FY13‐15E, would be able mitigate most of the acquisition risks.
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27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Satyam litigations – major concerns resolved Post its acquisition of Satyam, TechM management has settled multiple lawsuits, pertaining to the operations of Satyam, leading to cash outflow of $275mn. As of now, only two litigations remain, both of which, are highly unlikely to result in any implication for the company, as per the management. • Indian Income tax department: submitted three notices for cumulative penalty of Rs26.17bn (Rs20bn provisional in nature) pertaining to Satyam availing the benefit of Double‐Tax‐Avoidance Treaty. The claim litigation continues in court. The company has made a provision of Rs5bn for the same. • Raju Group of companies: 37 Raju group of companies have raised a demand of Rs12.3bn, pertaining to loan given by them to Satyam. Of this amount, the Enforcement Directorate believes Rs8.2bn to have been siphoned off, and wants the same to be paid to the govt. The dispute still continues in court. Lawsuits settled pertaining to Satyam operations Lawsuits settled
Settlement amount
SEC regulation violation and wrong accounting policy (Class Action) Upaid ‐ Forging of agreement in a contract Aberdeen Asset Mgmt PLC, UK Aberdeen Asset Mgmt, US
US$125mn US$70mn US$68mn US$12mn
Source: Company
The management has allocated provisions of Rs12.6bn (incl Rs5bn above) for unanticipated litigations against Satyam. We note that auditing and verification of Satyam’s books are ongoing relating to tax issues for prior years, the outcome of which, remains a constant risk, though minor, in our opinion.
Valuation P/E Band 4500
EV/EBITDA Band 450000
(Rs) 28x
4000 3500 3000
(Rs mn)
400000 350000
7x
300000
6x
2500
250000
5x
2000
200000
4x
20x
12x
1500
150000 100000
1000
4x
500
50000 0
0
Valuation Table Companies TCS Infosys Wipro HCL Tech Tech Mahindra Persistent KPIT
CMP Rs 2,094 3,530 550 1,246 1,827 986 172
M‐Cap Rs bn 4,098 2,017 1,354 881 433 39 32
_______ROE (%)______ FY14E FY15E 36.1 35.3 21.7 21.8 24.0 23.2 31.0 27.5 26.5 23.9 21.7 22.5 21.8 21.3
______P/E (x)______ FY14E FY15E 22.2 17.5 19.8 16.6 17.6 15.4 15.2 13.8 15.1 13.0 15.4 12.3 11.8 9.6
Source: PhillipCapital India Research Estimates
– 17 of 21 –
______P/BV (x)______ FY14E FY15E 8.0 6.2 4.3 3.6 4.2 3.6 4.7 3.8 4.0 3.1 3.4 2.8 2.6 2.0
_____EV/EBITDA (x)____ FY14E FY15E 16.3 13.5 13.2 10.8 13.0 11.3 10.1 8.9 9.5 7.9 9.4 7.5 7.6 6.4
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Revenue break‐up
Currency Mix
USD, 48%
Revenue Mix ‐ IT
GBP, 20%
Onsite, 51%
Geographies
Offshore, 49%
Americas, 44%
Verticals
EURO, AUD, Others, 9% 7% 16%
Europe, 33%
Telecom, 47%
RoW, 23%
Manufacturing, Retail/Transport, 19% 7% TME, 12% BFSI, 9% Others, 6%
Employee Mix and Client profile Sales, 8% Employee mix
BPO prof, 27%
Soft prof, 65%
≥ $10 mn, ≥ $50 mn, 10 48 Contract profile (No of Contracts)
≥ $5 mn, 77
≥ $1 mn, 223
≥ $20 mn, 26 Client rev share
Top 5, 36%
Top 10, 48%
Top 20, 61%
Utilisations and Attrition Utilizations (Ex trainees)
81%
Attrition
80%
18% 17%
80% 17%
79% 79%
16%
78% 16%
78% 77%
15%
77% 15%
76% 76%
14% Q1FY13
Q2FY13
Q3FY13
Source: Company, PhillipCapital India Research
– 18 of 21 –
Q4FY13
Q1FY14
Q2FY14
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Financials Cash Flow
Income Statement Y/E Mar, Rs mn Net sales Growth, % Employee expenses Other Operating expenses EBITDA (Core) Growth, % Margin, % Depreciation EBIT Growth, % Margin, % Interest paid Other Non‐Operating Income Pre‐tax profit Tax provided Profit after tax Others (Minorities, Associates) Net Profit Growth, % Net Profit (adjusted) Wtd avg shares (m)
FY13 FY14E FY15E FY16E 143,320 188,343 223,543 261,312 22 31 19 17 ‐90,007 ‐116,532 ‐139,647 ‐163,447 ‐22,682 ‐30,703 ‐36,186 ‐41,949 30,631 41,108 47,709 55,916 56.9 34.2 16.1 17.2 21.4 21.8 21.3 21.4 ‐3,896 ‐4,701 ‐5,762 ‐7,042 26,735 36,407 41,947 48,874 63.7 36.2 15.2 16.5 18.7 19.3 18.8 18.7 ‐922 ‐815 ‐553 ‐453 2,121 3,575 3,850 4,934 26,334 39,167 45,245 53,355 ‐6,479 ‐10,321 ‐11,764 ‐13,872 19,855 28,846 33,481 39,482 ‐301 ‐142 ‐19 ‐22 19,554 28,704 33,463 39,461 17.1 35.7 16.6 17.9 21,154 28,704 33,463 39,461 237 237 237 237
Y/E Mar, $ mn US$ Revenue Growth, % Re / US$ (rate)
FY13 2,633 6.7 54.4
FY14E 3,088 17.3 61.0
FY15E 3,606 16.7 62.0
FY16E 4,215 16.9 62.0
FY13 34,629 33,688 110 20,358 6,537 95,322 14,393 36,017 ‐13,699 2,595 24,913 138,105
FY14E 48,698 40,249 258 25,800 8,772 123,778 14,393 45,017 ‐18,400 2,595 29,212 170,859 35,119 16,670 51,789 9,268 61,057 2,316 106,000 1,486 109,802 170,859
FY15E 61,440 48,996 306 30,622 10,412 151,776 19,393 55,017 ‐24,162 2,595 33,450 208,095
FY16E 80,332 58,706 358 34,364 12,171 185,931 24,393 65,017 ‐31,204 2,595 36,408 250,209
42,085 16,451 58,537 7,768 66,305 2,316 137,970 1,505 141,791 208,095
47,019 16,777 63,796 6,768 70,564 2,316 175,802 1,527 179,644 250,209
Balance Sheet Y/E Mar, Rs mn Cash & bank Debtors Inventory Loans & advances Other current assets Total current assets Investments Gross fixed assets Less: Depreciation Add: Capital WIP Net fixed assets Total assets Current liabilities Provisions Total current liabilities Non‐current liabilities Total liabilities Paid‐up capital Reserves & surplus Minorities Shareholders’ equity Total equity & liabilities
28,951 16,203 45,154 10,768 55,922 2,316 78,523 1,344 82,183 138,105
Source: Company, PhillipCapital India Research Estimates
Y/E Mar, Rs mn Pre‐tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash flow from operating activities Capital expenditure Chg in investments Chg in marketable securities Other investing activities Cash flow from investing activities Free cash flow Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash flow from financing activities Net chg in cash
FY13 26,334 3,896 ‐7,812 ‐7,534 1,600 16,484 ‐10,250 293 0 0 ‐9,957 6,234 12 ‐2,974 ‐750 ‐39 ‐2,858 3,669
FY14E FY15E FY16E 39,167 45,245 53,355 4,701 5,762 7,042 ‐8,218 ‐8,290 ‐10,329 ‐9,854 ‐11,982 ‐13,547 0 0 0 25,796 30,735 36,521 ‐9,000 ‐10,000 ‐10,000 0 ‐5,000 ‐5,000 0 0 0 0 0 0 ‐9,000 ‐15,000 ‐15,000 16,796 20,735 26,521 ‐5 0 0 ‐1,500 ‐1,500 ‐1,000 ‐1,221 ‐1,493 ‐1,629 0 0 0 ‐2,726 ‐2,993 ‐2,629 14,069 12,742 18,892
Valuation Ratios & Per Share Data Per Share data EPS (INR) Growth, % Book NAV/share (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/Sales (x) Receivable days Payable days Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Dividend cover (x) Total debt/Equity (%) Net debt/Equity (%) Valuation PER (x) PEG (x) ‐ y‐o‐y growth Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x)
– 19 of 21 –
FY13 89.3 9.2 341.4 53.9 2.7 16.1 26.2 24.1 3.0 1.1 6.6 0.1 85.8 93.8 39.6 2.1 2.1 33.0 10.5 (32.3) 20.4 2.2 5.4 0.1 2.8 12.9 14.8
FY14E
FY15E
FY16E
121.0 35.5 456.8 93.7 4.4
141.0 16.5 591.2 113.3 5.4
166.3 17.9 750.6 133.1 5.9
19.0 26.5 27.7
17.9 23.9 25.2
17.4 22.2 23.7
3.1 1.2 7.0 0.1 78.0 87.1 45.1
3.1 1.2 7.1 0.1 80.0 87.4 51.9
3.0 1.1 7.5 0.2 82.0 83.6 58.4
2.4 2.4 27.5 6.5 (38.5)
2.6 2.6 26.2 3.9 (39.9)
2.9 2.9 28.3 2.5 (42.6)
15.1 0.4 4.0 0.2 2.0 9.3 10.5
13.0 0.8 3.1 0.3 1.6 7.7 8.8
11.0 0.6 2.4 0.3 1.3 6.2 7.1
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
Management Vineet Bhatnagar (Managing Director) Jignesh Shah (Head – Equity Derivatives)
(91 22) 2300 2999 (91 22) 6667 9735
Research Automobiles Deepak Jain Priya Ranjan Banking, NBFCs Manish Agarwalla Sachit Motwani, CFA, FRM
(9122) 6667 9758 (9122) 6667 9965
Engineering, Capital Goods Ankur Sharma (9122) 6667 9759 Aditya Bahety (9122) 6667 9986
(9122) 6667 9962 (9122) 6667 9953
Infrastructure & IT Services Vibhor Singhal (9122) 6667 9949 Varun Vijayan (9122) 6667 9992
Consumer, Media, Telecom Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Ennette Fernandes (9122) 6667 9764 Vivekanand Subbaraman (9122) 6667 9766 Cement Vaibhav Agarwal
(9122) 6667 9967
Economics Anjali Verma
(9122) 6667 9969
Metals Dhawal Doshi Dharmesh Shah
(9122) 6667 9769 (9122) 6667 9974
Oil&Gas, Agri Inputs Gauri Anand Deepak Pareek
(9122) 6667 9943 (9122) 6667 9950
Sales Trader Dilesh Doshi Suniil Pandit
(9122) 6667 9747 (9122) 6667 9745
Pharma Surya Patra
(9122) 6667 9768
Retail, Real Estate Abhishek Ranganathan, CFA (9122) 6667 9952 Neha Garg (9122) 6667 9996 Quant Shikha Khurana
(9122) 6667 9948
Database Manager Vishal Randive
(9122) 6667 9944
Sr. Manager – Equities Support Rosie Ferns (9122) 6667 9971
Sales & Distribution Kinshuk Tiwari Ashvin Patil Shubhangi Agrawal Kishor Binwal Sidharth Agrawal Dipesh Sohani
(9122) 6667 9946 (9122) 6667 9991 (9122) 6667 9964 (9122) 6667 9989 (9122) 6667 9934 (9122) 6667 9756
Execution Mayur Shah
(9122) 6667 9945
SINGAPORE Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 Raffles City Tower, Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg
Contact Information (Regional Member Companies) MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099 www.poems.com.my
HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307 www.phillip.com.hk
JAPAN Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp
INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id
CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn
THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th
FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com
UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com
UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005
AUSTRALIA PhillipCapital Australia Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au
SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm
INDIA PhillipCapital (India) Private Limited No. 1, C‐Block, 2nd Floor, Modern Center , Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 400011 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in
– 20 of 21 –
27 December 2013 / INDIA EQUITY RESEARCH / TECH MAHINDRA INITIATING COVERAGE
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Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities andExchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. PhillipCapital (India) Pvt. Ltd. Registered office: 2nd Floor, C‐Block, Modern Centre, Mahalaxmi, Mumbai – 400011
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