Tech Mahindra CMP TP Rs 735 1168 v Positive news

Tech Mahindra (CMP/TP: Rs 735/1168) v Positive news flow from Satyam in the form of client retention, new deal wins and favorable settlement with Upaid provides comfort on future business prospects. Steady Qo. Q Growth in Non-BT v Sustained volume traction from non-BT clients (CQGR of 7. 5% in last eight quarters) continues to provide revenue growth momentum, margin improvement, geographical diversification and reduced client concentration to the company. Strong Employee Addition 36000 3120 32000 510 2000 1033 1000 -457 0 Employee Q 4 FY 10 Q 3 FY 10 Q 2 FY 10 Q 1 FY 10 -1000 Q 4 FY 09 20000 Source: Company, Angel Securities 4000 3000 28000 24000 5000 3889 Net addition Source: Company, Angel Securities Valuation Snapshot Y/E Sales OPM PAT EPS ROE P/E EV/Sales March (Rs cr) (%) (Rs cr) (Rs) (%) (x) FY 2011 E 4, 989 24. 0 763 58. 3 24. 9 8 1. 2 FY 2012 E 5, 704 23. 0 876 67. 0 22. 0 6. 9 0. 9 1

Tech Mahindra SOTP Valuation of Tech Mahindra Economical EV/Sales despite comparative margins. (TTM) Rs in cr Tech Mahindra MCAP Value of stake in Satyam Assuming 30% discount Standalone MCAP of Tech Mahindra FY 12 Net Profit of Tech Mahindra Standalone Current PE of Tech Mahindra (x) Target FY 12 standalone multiple (x) 9, 120 4, 626 3, 192 5, 928 876 7 13 Target MCAP of Tech Mahindra Standalone 11, 300 Value of Satyam stake Target MCAP Target Price (Rs) 3, 192 14, 492 1, 168 Source: Company, Angel Securities v 2 40% 7 6. 2 35% 6 4. 9 30% 25% 5 3. 5 4 20% 2. 2 15% 3 2. 1 1. 4 10% 1. 7 2 1 5% 0% 0 Infosys TCS Wipro EV/Sales HCL Mphasis Tech. M Patni EBIDTA Margin Source: Company, Angel Securities The stock is trading at a substantial 65% discount (after deducting value of Satyam stake) to Infosys on a 1 -year forward P/E v/s a 5 -year average discount of 20% and 0. 9 x FY 2012 E EV/Sales (v/s Peer average of 3 x). Hence, we maintain a Buy on the stock.

Tech Mahindra Profit & Loss Statement Y/E March (Rs cr) Net Sales Balance Sheet FY 2009 FY 2010 E FY 2011 E FY 2012 E Y/E March (Rs cr) FY 2009 FY 2010 E FY 2011 E FY 2012 E SOURCES OF FUNDS 4, 465 4, 625 4, 989 5, 704 18. 5 3. 6 7. 9 14. 3 Equity Share Capital Total Expenditure 3, 172 3, 493 3, 791 4, 390 EBITDA 1, 293 1, 133 1, 198 1, 314 (% of Net Sales) 29. 0 24. 5 24. 0 23. 0 Depreciation& Amortisation 110 134 159 181 3 218 119 34 Other Income 27 75 10 Extraordinary Expense/(Inc. ) 75 9 1, 133 847 930 1, 109 (% of Net Sales) 25. 4 18. 3 18. 6 Tax 118 144 (% of PBT) 10. 4 % chg Interest & other Charges 122 126 129 Reserves& Surplus 1, 833 2, 509 3, 373 4, 349 Shareholders Funds 1, 954 2, 631 3, 499 4, 478 1, 400 800 Total Loans - Deffered Tax Liability (20) - - Total Liabilities 1, 935 4, 031 4, 299 4, 478 APPLICATION OF FUNDS Gross Block 900 1, 100 1, 275 1, 450 Less: Acc. Depreciation 410 544 703 885 Net Block 490 556 572 566 19. 4 Capital Work-in-Progress 154 204 229 179 167 233 Others 8 8 17. 0 18. 0 21. 0 Investments 0. 1 3 0. 0 Current Assets PAT after MI (reported) 1, 015 700 763 876 ADJ. PAT 1, 089 709 763 % chg 325. 2 (34. 9) 7. 6 PBT (reported) Less: Minority interest (MI) 3 - - 435 2, 947 2, 872 2, 822 1, 737 2, 103 2, 321 2, 541 Current liabilities 889 1, 787 1, 702 1, 637 876 Net Current Assets 848 316 619 904 14. 8 Total Assets 1, 935 4, 031 4, 299 4, 478

Tech Mahindra Key Ratios Cash Flow Statement Y/E March (Rs cr) Profit before tax FY 2009 FY 2010 E FY 2011 E FY 2012 E 1, 133 847 930 1, 109 Depreciation 110 134 159 181 Change in WC 132 819 (150) (175) Less: Other income (39) 78 10 Direct taxes paid Cash Flow from Operations (Inc). / Dec in Fixed Assets 190 144 167 233 1, 223 1, 578 762 872 (251) (250) 200 125 (Inc). / Dec. in Investments (378) (2, 512) (75) (50) - - 15 75 10 (614) (2, 687) 115 65 3 26 179 Inc. /(Dec. ) in loans (30) 1, 400 (600) (800) Dividend Paid (Incl. Tax) 138 50 73 75 - - (Inc). / Dec. in loans and adv. Other income Cash Flow from Investing Issue of Equity Others Cash Flow from Financing (165) 1, 376 (494) (696) 444 267 153 111 Opening Cash balances 93 538 806 958 Closing Cash balances 538 806 958 1, 069 Inc. /(Dec. ) in Cash 4 Y/E March (Rs cr) Per Share Data (Rs) FY 2009 FY 2010 E FY 2011 E FY 2012 E EPS 77. 6 53. 6 58. 3 67. 0 Cash EPS 92. 6 68. 2 73. 4 81. 8 4. 0 3. 5 5. 0 160. 5 215. 1 278. 4 346. 6 DPS Book Value Operating Ratio (%) Receivables (days) Payables (days) 74 76 72 69 75 71 ROE 63. 0 30. 6 24. 9 22. 0 ROCE 85. 9 76. 7 82. 7 73. 4 0. 5 0. 7 P/E (on FDEPS) 9. 5 13. 7 8. 0 6. 9 P/BV 4. 6 3. 4 2. 6 2. 1 EV/Sales 1. 8 1. 4 1. 2 0. 9 EV/EBITDA 6. 0 5. 7 5. 0 3. 9 Returns % Dividend yield Valuation Ratio (x)