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Merill Lynch BUY on Tech Mahindra

May 12, 2007

Merill Lynch [ML] in a report released just a while ago has retained a Buy on Tech Mahindra Ltd (TML) with a PO of Rs 2125, given strong earnings CAGR of 45% on adjusted EPS basis and robust spend by Telecom service providers.

Merill Lynch has established a Price Objective of Rs2125 is at 0.7PEG (FY08PE to FY07-09e) vs our target PEG of ~1 for leading majors like Infosys, implying a target P/E of 21x. ML believe this is fair given sharp earnings growth of 45% (FY07-09e), robust IT spends by telecom service providers and increasing trend in offshoring. This is the only big league IT company that will grow at such momentum.

ML expects Tech Mahindra to report an EPS of Rs 76 and Rs 106 for FY08 and FY09.

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