Sell Tech Mahindra – Citi

Citi in a report released just a while ago has recommended a SELL / High Risk on Tech Mahindra.

Tech Mahindra (TM) posted revenue of US$258m (vs. estimate of US$260m) and a margin decline of ~20bps, despite sharp uptick in utilization (400bps) and no pass-through revenue in 4Q. Net profit of Rs2.2bn was below expectations (est. Rs2.27bn) despite forex gains of US$7m.

TM booked revenue of just US$30m in FY08 (from US$1bn order), of which 4Q accounted for ~US$20m revenue. Excluding this deal, top-line growth was flat at ~1% qoq. TM has an order backlog of US$2bn (executable over next 4/5 years.

TM is expected to report an EPS of Rs 71.53 for FY09 and mere Rs 75.19 for FY10. Citi recommends a SELL with High Risk rating and a target price of Rs 730.

DalalStreet Analyst View:Compared to poor and unethical management like that of Satyam, TM has good management practices. As an investor, profit making is our motive, so if you have bought TM in IPO, you may consider some profit taking as future looks bleak and growth is unpredictable with EPS growth and order book slowing down drastically.