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MOSL: Morning India (22/February/19): 1. Tech Mahindra (Buyback announced at INR950/share); 2. Voices (Domestic Cyclicals led by Banks take center stage)

MOrning India (22/February/19): 1. Tech Mahindra (Buyback announced at INR950/share); 2. Voices (Domestic Cyclicals led by Banks take center stage)

 

Today’s top research idea

Tech Mahindra: Buyback announced at INR950/share; Limited upside triggers in the near term; growth uptick is imperative

• TECHM announced buyback of shares worth INR19.56b at a ceiling price of INR950/share through a tender offer (~2.7% of market cap). Total amount of shares considered will not exceed 20.56m (2.3% of total paid-up equity capital). The amount is less than 10% of networth (9.4%).
• Buyback should now be part of the capital allocation policy, and the current buyback is not in lieu of dividend.
• At 15.1/13.6x FY20/21E, TECHM’s valuations remain below that of leading peers such as TCS and INFO. Near-term upside will be limited given that there is still time for impetus from 5G to play out, and earnings growth should settle down after the margins’ run. Our price target of INR940 (15% upside) discounts forward earnings by 15x v/s five-year average of 14.5x, baking in a higher payout. Maintain Buy.

Piping hot news

Axis Bank plans to take the acquisition route to insurance

• After weathering storms of bad loans and profitability, Axis Bank, under new Managing Director and Chief Executive Officer Amitabh Chaudhry, has set its sights on entering the insurance business in a year’s time via acquisition. “We are continuously approached by a lot of groups to actually take a stake in their insurance ventures – life, general, health. Most important thing before we can move ahead is to get an understanding and blessings from the Reserve Bank of India (RBI) in terms of what they will allow us to do,” Chaudhry told BusinessLine.