Ashish Chopra (Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424

Siddharth Vora (Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585

26 February 2015

Update | Sector: Technology

Tech Mahindra CMP: INR2,765 TP: INR3,200 (+16%) Buy

Revenue growth traction intact… …but sustaining profitability is the key challenge

Organic revenue growth in Telecom is driven by three trends for TECHM: [1] Digitization programs of Telecom service providers, [2] Continued share gains in the Renewal market and [3] Addition of Network services to its portfolio.

However, despite multiple revenue drivers, organic CC growth in FY16 for Telecom vertical should lag the high base of ~25% YoY CC organic growth in 9MFY15.

Deal wins in Enterprise segment have progressively improved, with TECHM winning sizeable deals in verticals other than Manufacturing too, in last couple of quarters. That will help propel organic growth in Enterprise segment to industry average in FY16, compared to high single digits in FY15.

Headwinds to margins in 4Q will come from: [1] Wage hikes effective in January, [2] Partial impact from LCC integration. However, impact to margins would be cushioned by seasonality in Comviva. Key pressure to margins will come in 1QFY16 from [1] Full quarter impact of LCC and Sofgen integrations,[2] Visa expenses and [3] Base effect of Comviva in 4Q.

TECHM’s aim will be to maintain organic revenue margins at levels similar to FY15 (~19%), while acquisitions will be a 100bp headwind on top of the same.

Our EBITDA margin for FY16 is lower by 70bp to 18.5% given the pressures in 1QFY16 that should suppress the profitability, which we expect to pick up during the course of the year. This also feeds into 4.6% cut in EPS estimate for FY16.

Telecom growth pockets expand beyond market-share gains TECHM has grown over the years in Telecom vertical by gaining market

share, increasing presence in multiple areas of the Telecom vertical like Managed Services. Recent foray in the Network services has been yet another step in this direction to increase its addressable market opportunity.

In addition to that, growth in Telecom in FY15 has been supported by digitization programs picking up across various Telecom companies.

For FY16 LCC will be an inorganic growth driver for the Telecom vertical, organically too, while the growth will continue to be sanguine too. However, the base growth in FY15 is significantly high - 25% YoY constant currency growth in the 9MFY15, all of which is organic. Organic growth in FY16 is expected to be relative lower due to the base effect.

Integration of LCC acquisition is expected to contribute USD430m+ of revenues to the Telecom vertical in FY16.

BSE Sensex S&P CNX 29,005 8,762

Stock Info Bloomberg TECHM IN

Equity Shares (m) 240.0

52-Week Range (INR) 2998/1678

1, 6, 12 Rel. Per (%) 0/10/11

M.Cap. (INR b) 670.1

M.Cap. (USD b) 10.8

Avg Val. INRm/Vol‘000 1634/757

Free float (%) 63.3

Financial Snapshot (INR b) Y/E Mar 2015E 2016E 2017E

Sales 225.7 287.8 335.0

EBITDA 43.1 53.2 63.9

Adj. PAT 28.9 35.6 43.9

Adj. EPS (INR) 130.4 160.4 197.7

EPS Gr. (%) 4.4 23.0 23.2

RoE (%) 27.0 26.2 26.4

RoCE (%) 28.7 29.2 30.0

Payout (%) 17.0 18.7 17.7

P/E (x) 21.2 17.2 14.0

EV/EBITDA (x) 13.1 10.5 8.3

Shareholding pattern (%)

As on Dec-14 Sep-14 Dec-13 Promoter 36.0 36.2 36.5

DII 10.6 10.8 15.1

FII 39.6 39.1 32.6 Others 13.7 14.0 15.8

FII Includes depository receipts

Stock Performance (1-year)

1,500

1,900

2,300

2,700

3,100

Feb-

14

May

-14

Aug-

14

Nov

-14

Feb-

15

Tech MahindraSensex - Rebased

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Tech Mahindra

26 February 2015 2

Exhibit 1: Expect organic growth deceleration in Telecom vertical

Source: Company, MOSL

Expect growth in the Enterprise segment to accelerate in FY16 TECHM’s deal win performance in the Enterprise segment has progressively

improved in the last few quarters – and now spans verticals other than Manufacturing as well. This is expected to accelerate its organic growth in the verticals outside Telecom from high single digits to in line with the industry average in FY16.

Exhibit 2: Expect Enterprise Segment growth to accelerate further as multiple deal wins are being seen in the segment

Source: Company, MOSL

Margins face headwinds from acquisitions 4Q will witness 170-180bp headwind from wage hikes, and ~50-60bp

considering 45 days post integration with LCC. There are multiple levers Utilization, employee pyramid and offshore revenue mix. 4Q is seasonally a strong quarter for Comviva which is also expected to aid margins. We expect margins to fall 140bps to 18.8% in 4QFY15 and FY15 margins are expected to be 19.3%.

1QFY16 will be the quarter with further pressure to margins in the form of visa costs, expected lower revenues from Comviva and full quarter impact of LCC integration. TECHM’s acquisitions LCC and Sofgen have high single digit margins and improvement in same would be gradual.

TECHM’s aim will be to maintain organic revenue margins at levels similar to FY15 (~19%), while acquisitions will be a 100bp headwind on top of the same.

5.4

-0.9

8.9 8.8 9.2

26.623.8

FY09 FY10 FY11 FY12 FY13 FY14 9MFY15

Telecom Growth (% YoY)

190

500

220270 250 270

220

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15

Deal TCV (USD m)

1,426

1,571

1,307

10.112.2

FY13 FY14 9MFY15

Enterprise Segment Revenues (USD m) Growth (YoY %)

Tech Mahindra

26 February 2015 3

Exhibit 3: FY16 margins face 100bp headwind from merger of acquisitions

Source: Company, MOSL

Marginal moderation to FY16E EBITDA Our estimates for top line remain largely unchanged post the discussion. We

expect growth at TECHM to continue to stay ahead of the industry. 1% change in FY16 revenue growth is on the back of cross currency MTM.

Our EBITDA margin for FY16 is lower by 70bp to 18.5% given the pressures in 1QFY16 that should suppress the profitability, which we expect to pick up during the course of the year.

Exhibit 4: Change in estimates Revised Earlier Change

FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

INR/USD 61.3 62.0 62.0 61.2 62.0 62.0 0.2% 0.0% 0.0%

USD Revenue-m 3,682 4,643 5,403 3,692 4,692 5,426 -0.3% -1.1% -0.4%

USD rev Gr (%) 18.8 26.1 16.4 19.2 27.1 15.6 -37bp -99bp 78bp

EBIDTA Margin (%) 19.1 18.5 19.1 19.3 19.2 19.2 -21bp -73bp -12bp

EBIT Margin (%) 16.4 16.1 16.9 16.6 16.8 17.0 -17bp -72bp -12bp

EPS - INR 130.4 160.4 197.7 132.3 168.2 199.9 -1.4% -4.6% -1.1%

Source: Company, MOSL

18.6

21.0 21.422.2

19.3 19.2

FY11 FY12 FY13 FY14 FY15E FY16E

EBITDA Margins

Tech Mahindra

26 February 2015 4

Valuation view: Expect continued growth leadership with stable margins Prospects of revenue growth at the top-end of the industry band remain

sanguine at TECHM due to multiple reasons: 1. Success in large deal wins is an encouraging indicator of TECHM’s improving

competitive prowess, even in the Enterprise segment. With three large deal wins in Manufacturing beginning to come through, prowess in Telecom will likely be compounded with Enterprise too, keeping growth outlook sanguine.

2. Also, its expertise in the Telecom vertical has thus far overshadowed the structural concerns in the client industry, as it continues to increase its share within its top accounts.

3. Network management services have potentially expanded the addressable market for TECHM, with directly addressable spend standing at ~USD40b. Additionally, opportunity going forward comes from increased adoption of offshore services by Continental Europe.

4. TECHM also has a sizeable scale in Engineering services, and the opportunity in the same can be leveraged, especially after the acquisition of Mahindra Engineering Services (MES)

While the integration of LCC to TECHM’s numbers will dent the margins in the near term (~100bp impact on current base of 19%) along with wage hikes (~200bp impact), we expect the company to operate its margins in a band of 18-19%, especially as the cost efficiencies at LCC help improve the margins in the acquired entity from 8% currently to 12%. The acquisition of Sofgen is only a small step towards the company’s much coveted scale in BFSI, but access to tier-I accounts in emerging economies can help drive some large deal wins.

While cash flows generation has been a potential concern, TECHM’s OCF/EBITDA should average ~55%, close to TCS’ 60%. Also, TECHM’s active inorganic foray has ensured relatively better capital allocation v/s peers, and its track record of successfully integrating companies keeps prospects of profitably scaling into the big league sanguine.

We expect TECHM to grow its USD revenue at a CAGR of 21% over FY15-17 and EPS at a CAGR of 23% during this period. At 17x FY16E and 14x FY17E EPS, the stock is above its 5-year average, justifiably given the improvement in revenue growth and margins following merger with Satyam; and increasing irrelevance of the pressures in BT. Our Target Price of INR3,200 discounts FY17E EPS by 16x, following expectation of sustained above-industry growth over the medium term. Maintain Buy.

Key Triggers Large deal announcements in enterprise segment. Efficiency led offset to near term margin headwinds. Recovery in enterprise revenue growth. Key Risks Deterioration in cash conversion. INR appreciation given higher sensitivity to earnings v/s peers. Greater than anticipated margin decline.

Tech Mahindra

26 February 2015 5

Exhibit 5: TECHM 1-year forward PE chart

Source: Company, MOSL

Exhibit 6: TECHM 1-year forward PB chart

Source: Company, MOSL

Exhibit 7: Comparative valuation Company Mcap Rating TP Upside EPS (INR) P/E (x) RoE (%) FY15-17E CAGR (%) USDb

(INR) (%) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E USD rev. EPS

TCS 84.4 Neutral 2650 -0.8 108.4 125.8 147.2 24.6 21.2 18.2 35.2 34.0 32.7 13.7 16.5 Infosys 42.8 Buy 2500 7.8 108.7 120.0 137.7 21.3 19.3 16.8 26.2 24.8 24.6 12.5 12.6 Wipro 26.4 Neutral 640 -3.6 35.0 37.8 42.6 19.0 17.6 15.6 24.8 24.3 23.1 11.4 10.3 HCL Tech 22.6 Buy 2150 8.4 105.5 117.0 132.5 18.8 17.0 15.0 33.3 30.7 29.2 14.4 12.0 TechM 10.5 Buy 3200 15.7 130.4 160.4 197.7 21.2 17.2 14.0 27.4 26.2 26.4 21.1 23.1 Cognizant 38.1 Not Rated

2.3 2.7 3.2 26.6 23.2 19.4 20.7 19.3 19.0 17.7 17.0

Tier-I Agg 224.8

21.9 19.1 16.5 27.9 26.7 25.8

Source: Company, MOSL

16.9

10.90

22

44

66

88

Aug

-06

Jul-0

7

May

-08

Mar

-09

Jan-

10

Nov

-10

Sep-

11

Jul-1

2

May

-13

Apr

-14

Feb-

15

P/E (x) 5 Yrs Avg(x) 8 Yrs Avg(x)

4.0

2.60.0

5.0

10.0

15.0

20.0

Aug

-06

Jul-0

7

May

-08

Mar

-09

Jan-

10

Nov

-10

Sep-

11

Jul-1

2

May

-13

Apr

-14

Feb-

15

P/B (x) 5 Yrs Avg(x) 8 Yrs Avg(x)

Tech Mahindra

26 February 2015 6

Story in charts

Exhibit 1: Telecom prowess reflected in vertical mix

Source: Company, MOSL

Exhibit 2: Scale and diversity lent by Satyam acquisition

Source: Company, MOSL

Exhibit 3: Active on the acquisition front – building scale and competencies

STANDALONE TECHM Time Valuation (USD m) Revenue (USD m) Employees

Mahndra Satyam Apr-09 1,133 481 (FY11) 48,000

Hutchison Global Services Sep-12 67 170 11,500

Comviva Sep-12 95 70 1,500

MAHINDRA SATYAM Complex IT (Brazil) Feb-13 45 45 500

COMBINED ENTITY Mahindra Engineering Services Nov-13 121 42 1,300

BASF Business Service Consult Feb-14 NA NA 60

Fix Stream Apr-14 10 NA NA

Lightbridge Communication Corp. Nov-14 240 430 5,700

Sofgen holdings Ltd Jan-15 ~30 45 450

Source: Company, MOSL

Exhibit 4: Strong execution reflected in much improved efficiency

Source: Company, MOSL

Exhibit 5: Incremental Deal TCV keep growth outlook sanguine

Source: Company, MOSL

Telecom, 50.9

Manufacturing, 19.7

Tech, Media, Ent,

7.3

BFSI, 9.8

Retail, Travel,

Logistics, 6.4

Others, 5.9

Vertical mix (%)

985 977 1063 1156 2633 3098 3682

5.4 -0.9 8.9 8.8

127.7

17.7 18.8

FY09 FY10 FY11 FY12 FY13 FY14 FY15E

Revenue (USD m) YoY Growth (%)

24.5

20.4 16.7

21.4 22.2 19.1

FY10 FY11 FY12 FY13 FY14 FY15E

EBITDA margin (%)

190

500

220270 250 270

220

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15

Deal TCV (USD m)

Tech Mahindra

26 February 2015 7

Exhibit 6: Operating Metrics Operating Metrics 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15

Revenue by geography (%)

Americas 43 42 45.1 44.2 47.1 44.9 46.8 49.1 48.8

Europe 35 33 32.4 33 30.9 30.6 31.1 31.2 31.4

Rest of World 22 25 22.5 22.8 22 24.4 22.1 19.8 19.8

Vertical Split (%)

Telecom 46 48 49.2 48.3 48.8 50.8 50.7 52 50.9

Manufacturing 18 19 19.2 18.6 19 18.5 17.8 17.7 19.7

Tech | Media | Entertainment 12 12 10.5 10.5 9.1 8.6 8.9 8.3 7.3

BFSI 11 10 9.3 9.4 9.9 10.1 10.3 9.7 9.8

Retail | Transport | Logistics 7 6 6 7.1 6.9 6.4 6.3 6.2 6.4

Others 6 5 5.8 6.1 6.3 5.6 6 6.1 5.9

Onsite-offshore mix (%)

Onsite 48.3 48.4 50.9 51.0 52.3 52.7 53.7 55.2 55.3

Offshore 51.7 51.6 49.1 49.0 47.7 47.3 46.3 44.8 44.7

Client Metrics

No. of active clients 475 516 567 576 605 629 632 649 674

% of repeat business 92 94 97 95 92 88 99 97 95

No. of Million $ clients

USD1m+ 206 205 215 223 239 239 242 245 254

USD5m+ 77 70 74 77 75 75 80 86 88

USD10m+ 48 42 46 48 47 52 51 50 51

USD20m+ 22 24 25 26 25 27 29 30 32

USD50m+ 9 9 10 10 11 11 11 12 13

Client concentration (%)

Top client 14 13 12

Top 5 Clients 39 37 37 36 37 38 37 40 37

Top 6-10 11 13 12 12 12 13 13 11 12

Top 11-20 12 11 11 13 12 12 12 12 12

Headcount (end of period)

Software professionals 53,072 52,126 53,337 55,432 57,601 60,997 64,095 66,175 67,592

BPO 26,379 24,699 23,269 23,225 23,213 21,830 21,936 22,433 23,566

Sales and Support 6,195 6,284 6,457 6,577 6,585 6,614 6,698 6,701 6,851

Total 85,646 83,109 83,063 85,234 87,399 89,441 92,729 95,309 98,009

IT Attrition (LTM) (%) 16 16 14 14 15 15 16 18 19

IT Utilization (%) 76 77 76 75 75 74 72 73 74

IT Utilziation (excluding trainees) (%) 78 79 78 77 77 78 75 76 78

Receivable Days (DSO)-Including Unbilled 98 96 97 102 100 96 102 102 100

Borrowings (USD m) 199.2 213.6 125.7 53.5 55.3 60.6 14.3 10.2 10.2

Cash and Cash Equivalent (USD m) 676 673.9 615.4 522.7 559.7 600.6 609.7 556 668.4

Capital Expenditure (USD m) 15.5 41.9 41.2 23.8 21.2 44.6 43.6 38.5 53.5

Source: Company, MOSL

Tech Mahindra

26 February 2015 8

Exhibit 7: Operating Metrics Operating Metrics 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15

Rupee USD Rate

Period closing rate 55 54.29 59.39 62.61 61.81 59.92 60.18 61.5 63.04

Period average Rate 54.36 53.96 56.57 62.91 61.92 61.46 59.87 60.94 62.15

Proportion of Revenues From Major Currencies

USD 47 47 50.1 48.1 48.8 48.6 49.8 51.5 51.1

GBP 24 23 19.2 19.7 17.5 16.4 16.2 16.1 14.9

EURO 7 7 8.5 8.7 9.2 9.9 10.2 10.3 11.9

AUD 9 8 7.4 6.8 7.1 7.7 6.7 6.4 5.8

Others 14 14 14.8 16.5 17.4 17.4 17.1 15.6 16.4

Consolidated Hedge Position

GBP In Mn 276.6 262.8 267.9 244.2 211 170.5 144.3 123.3 108

Strike rate (INR) 88.04 89.89 91.58 92.4 94.2 95.3 97.1 99.9 103.7

USD In Mn 910.3 911 1081.6 899.3 771 783.9 1046.8 1224.2 1582.5

Strike rate (INR) 55.64 56.93 58.22 58.9 59.5 60.6 61.6 63 65.2

Verticals (QoQ)

Telecom 7.1 8.0 6.3 2.8 5.4 8.6 3.5 7.9 0.5

Manufacturing -0.8 9.2 4.8 1.4 6.6 1.6 -0.3 4.6 14.3

Tech | Media | Entertainment -3.3 3.5 -9.3 4.7 -9.6 -1.4 7.3 -1.9 -9.7

BFSI 4.7 -6.0 -3.6 5.8 9.9 6.4 5.7 -0.9 3.8

Retail | Transport | Logistics 4.7 -11.3 3.7 23.9 1.4 -3.3 2.0 3.6 6.0

Others 25.7 -13.8 20.3 10.1 7.8 -7.3 11.1 7.0 -0.7

Total 4.7 3.5 3.7 4.7 4.4 4.3 3.7 5.2 2.7

Revenue by geography (QoQ)

Americas 0.1 1.0 11.4 2.6 11.2 -0.6 8.0 10.4 2.1

Europe 7.8 -2.5 1.8 6.6 -2.3 3.3 5.4 5.6 3.4

Rest of World 9.7 17.6 -6.7 6.1 0.7 15.7 -6.1 -5.7 2.7

Total 4.7 3.5 3.7 4.7 4.4 4.2 3.8 5.3 2.6

Client concentration (QoQ)

Top 5 -2.2 -3.9 -4.3 1.9 7.3 7.1 0.9 13.8 -5.0

Top 6-10 -0.4 -1.9 3.7 4.7 4.4 13.0 3.7 -11.0 12.0

Top 11-20 15.2 22.3 -4.3 23.7 -3.7 4.3 3.7 5.2 2.7

Net additions

Software professionals 697 -946 1,211 2,095 2,169 3,396 3,098 2,080 1,417

BPO -2,232 -1,680 -1,430 -44 -12 -1,383 106 497 1,133

Sales and Support 275 89 173 120 8 29 84 3 150

Total -1,260 -2,537 -46 2,171 2,165 2,042 3,288 2,580 2,700

Source: Company, MOSL

Tech Mahindra

26 February 2015 9

Financials and valuations

Key Assumptions Y/E March 2010 2011 2012 2013 2014 2015E 2016E 2017E

INR/USD Rate 45.5 47.5 54.4 60.8 61.3 62.0 62.0 Revenues (USD m) 905 2,194 2,463 2,633 3,098 3,682 4,643 5,403 Total Headcount 74,116 83,109 89,441 105,051 124,669 143,393 Net Addition 8,993 6,332 15,610 19,618 18,724 Per Capita Productivity (USD) 31,678 34,638 35,046 37,240 37,682 Utilization uncl. Trainees (%) 75.5 75.0 74.3 78.1 79.6 IT Services (%) 90.5 90.3 91.5 92.2 91.9

Income Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015E 2016E 2017E

Sales 46,254 48,413 54,897 143,320 188,313 225,746 287,845 335,003

Change (%) 3.6 4.7 13.4 161.1 31.4 19.9 27.5 16.4 Total Expenses 34,929 38,518 45,703 112,689 146,477 182,653 234,682 271,069

EBITDA 11,325 9,895 9,194 30,631 41,836 43,093 53,163 63,934

% of Net Sales 24.5 20.4 16.7 21.4 22.2 19.1 18.5 19.1

Depreciation 1,338 1,435 1,614 3,896 5,221 6,002 6,886 7,388

Interest 2,184 999 1,413 922 673 229 418 287

Other Income 754 1,174 1,368 2,121 1,129 2,184 2,190 3,295

PBT 8,557 8,635 7,535 26,334 37,071 39,047 48,049 59,554

Tax 1,440 1,315 1,438 6,479 9,790 10,229 12,252 15,484

Rate (%) 16.8 15.2 19.1 24.6 26.4 26.2 25.5 26.0

PAT 7,118 7,320 6,097 19,855 27,281 28,818 35,796 44,070

Minority Interest & EO items 113 653 714 301 336 171 200 200

PAT before EO 8,265 8,787 10,918 19,554 26,945 28,647 35,596 43,870

Change (%) -18.5 6.3 24.2 79.1 37.8 6.3 24.3 23.2

Effect of restructuring fees -1,663 -1,695 -1,618 -1,340 -1,117 0 0 0

PAT after RF before EO 6,601 7,092 9,299 18,214 25,828 28,647 35,596 43,870

Balance Sheet (INR Million) Y/E March 2010 2011 2012 2013 2014 2015E 2016E 2017E Share Capital 1,223 1,260 1,275 2,316 2,335 2,400 2,400 2,400 Reserves 25,268 32,254 42,032 66,214 89,469 119,866 147,011 181,021 Net Worth 26,491 33,514 43,307 68,530 91,804 122,266 149,411 183,421 Minority Interest 139 159 0 1,349 1,453 1,578 1,578 1,578 Loans 13,672 12,227 11,266 14,702 8,420 8,687 8,477 7,956 Amount pending invest. 12,304 12,304 12,304 12,304 12,304 Capital Employed 40,302 51,737 54,573 96,885 113,981 144,835 171,769 205,259 Assets 6,043 6,170 6,868 22,318 28,606 41,115 45,160 47,772 Investments 30,145 29,080 35,876 12,429 12,194 12,194 12,194 12,194 Long term loans and adv 7,433 9,137 11,376 11,376 11,376 Deferred Tax Assets 276 638 998 3,477 3,830 4,109 4,109 4,109 Other non-current assets 219 157 13 13 13 Curr. Assets 19,346 23,455 20,437 89,634 105,472 115,509 143,598 180,475 Debtors 10,420 12,468 13,172 33,688 43,486 54,475 70,149 81,566 Cash & Bank Balance 2,187 2,666 2,418 34,629 33,202 25,026 34,554 57,327 Loans & Advances 6,725 8,315 4,845 12,925 14,544 16,482 16,482 16,482 Current Investments 1,745 2,525 5,841 5,841 5,841 Other Current Assets 14 6 2 6,647 11,715 13,686 16,573 19,259 Current Liab. & Prov 16,342 8,711 11,235 41,220 45,415 44,175 49,375 55,374 Net Current Assets 3,004 14,744 9,202 48,414 60,057 71,334 94,223 125,101 Application of Funds 42,676 51,737 54,573 96,885 113,981 144,835 171,769 205,259 E: MOSL Estimates

Tech Mahindra

26 February 2015 10

Financials and valuations

Ratios Y/E March 2010 2011 2012 2013 2014 2015E 2016E 2017E Basic (INR) EPS 54.0 56.3 72.9 98.2 126.4 133.2 165.5 204.0 Diluted EPS 50.5 54.3 70.4 95.6 122.7 129.1 160.4 197.7 Cash EPS 60.7 65.2 82.6 112.6 147.5 156.2 191.5 231.0 Book Value 216.6 266.0 339.7 325.5 449.3 568.5 694.7 852.8 DPS 3.5 4.0 4.0 5.0 20.0 22.0 30.0 35.0 Payout % 6.9 7.4 5.7 5.8 16.3 17.0 18.7 17.7 Valuation (x) P/E 39.3 32.0 22.5 21.4 17.2 14.0 Cash P/E 33.5 24.6 18.8 17.7 14.4 12.0 EV/EBITDA 38.6 17.4 12.6 13.1 10.5 8.3 EV/Sales 6.5 3.7 2.8 2.5 1.9 1.6 Price/Book Value 8.1 8.2 6.2 4.9 4.0 3.2 Dividend Yield (%) 0.1 0.2 0.7 0.8 1.1 1.3 Profitability Ratios (%) RoE 30.7 25.7 26.0 32.6 36.4 27.0 26.2 26.4 RoCE 30.8 18.4 14.3 35.3 34.7 28.7 29.2 30.0 Turnover Ratios Debtors (Days) 77 86 85 60 75 79 79 83 Fixed Asset Turnover (x) 4.5 4.0 3.9 5.8 7.0 6.1 6.0 6.5 Leverage Ratio Debt/Equity Ratio(x) 0.5 0.4 0.3 0.2 0.1 0.1 0.1 0.0 Cash Flow Statement (INR Million) Y/E March 2010 2011 2012 2013 2014 2015E 2016E 2017E

CF from Operations 9,549 15,717 3,692 14,259 33,935 32,979 40,711 48,250

Change in Working Capital 2,283 -11,261 7,778 -7,608 -12,302 -15,753 -13,362 -8,104

Other adjustments 37,353

Net Operating CF 11,832 4,455 11,470 6,651 21,634 17,225 27,349 40,146

Net Purchase of FA -4,069 541 -2,836 -3,099 -7,854 -19,525 -11,351 -11,041

Net Purchase of Invest. -25,799 1,065 -6,796 -1,940 -8,539 671 2,190 3,295

Net Cash from Invest. -29,868 1,606 -9,632 -5,039 -16,393 -18,854 -9,161 -7,746

Inc./(Dec) in Equity 1,670 -3,548 -528 1,032 19 65 0 0

Proceeds from LTB/STB 13,672 -1,445 -961 -7,036 -1,305 -415 -208 233

Dividend Payments -501 -590 -597 -750 -5,381 -6,198 -8,452 -9,860

Cash Flow from Fin. 14,841 -5,582 -2,086 -6,754 -6,668 -6,547 -8,660 -9,627

Net Cash Flow -3,195 479 -248 32,211 -1,427 -8,176 9,528 22,773

Opening Cash Balance 5,382 2,187 2,666 2,418 34,629 33,202 25,026 34,553

Add: Net Cash -3,195 479 -248 32,211 -1,427 -8,176 9,528 22,773

Closing Cash Balance 2,187 2,666 2,418 34,629 33,202 25,026 34,553 57,326 E: MOSL Estimates

Tech Mahindra

26 February 2015 11

Corporate profile: Tech Mahindra

Exhibit 9: Shareholding pattern (%) Dec-14 Sep-14 Dec-13

Promoter 36.8 36.0 36.4

DII 11.4 10.6 9.1

FII 38.1 39.6 40.4

Others 13.7 13.7 14.2

Note: FII Includes depository receipts

Exhibit 10: Top holders Holder Name % Holding

Europacific Growth Fund 2.1

ICICI Prodental Focused Bluechip Equity Fund 1.4 National Westminster Bank PLC as Depository of First

1.4

Government Pention Fund Global 1.3 National Westminster Bank Plc as Depository of First

1.2

Exhibit 11: Top management

Name Designation

C P Gurnani MD & CEO

Manoj Chugh Global Head, Business Developt.

Manish Vyas Global Head, Communications

Milind Kulkarni CFO

RAkesh Soni COO

Exhibit 12: Directors Name Name

Anand G Mahindra M Rajyalakshmi*

C P Gurnani Ravindra Kulkarni*

M Damodaran* Ulhas N Yargop

Anupam Puri* Bharat N Doshi

T N Manoharan* Vineet Nayyar

*Independent

Exhibit 13: Auditors

Name Type

Deloitte Haskins & Sells LLP Statutory

Exhibit 14: MOSL forecast v/s consensus EPS

(INR) MOSL

forecast Consensus

forecast Variation

(%)

FY15 133.2 128.0 4.1 FY16 165.5 162.4 1.9 FY17 204.0 192.1 6.2

Company description Tech Mahindra represents the connected world, offering innovative and customer-centric information technology services and solutions, enabling Enterprises, Associates and the Society to Rise™. It is a USD3.5b company with ~98,000+ professionals across 51 countries, helping over 674 global customers including Fortune 500 companies. It is a part of the USD 16.7 billion Mahindra Group that employs more than 180,000 people in over 100 countries.

Exhibit 17: Sensex rebased

1,500

1,900

2,300

2,700

3,100

Feb-

14

May

-14

Aug

-14

Nov

-14

Feb-

15

Tech Mahindra Sensex - Rebased

Tech Mahindra

26 February 2015 12

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