Monday August 28, 08:21 PM
By Janaki Krishnan
MUMBAI (Reuters) - Shares in Indian telecoms software services firm Tech Mahindra Ltd. closed up 51.5 percent on their first day of trade, surprising analysts and helping the market to end near a three-month peak.
The company, a venture between Indian tractor maker Mahindra & Mahindra Ltd. and Britain's BT Group Plc, raised 4.65 billion rupees ($100 million) in its early August offering, selling 12.7 million of its shares.
The stock closed at 552.80 rupees in a firm Mumbai market after opening at 525 rupees, 44 percent above the issue price.
"The market was expecting its shares to list at close to 500 rupees," said Surendra Goyal, IT analyst with SSKI Securities. "There was a lot of demand for the stock."
Tech Mahindra had the highest volume of any company on the BSE with 8.2 million shares traded.
"This is a very good response to the issue especially when the market is so uncertain," said S. Ramesh, chief operating officer of Kotak Mahindra Capital Co. Ltd, a lead manager.
For the current year to March 2007, the company's earnings are expected to be in the range of 37-39 rupees per share, said Pratik Dalal, IT analyst with Emkay Share & Stock Brokers Ltd.
"The company is currently trading at around 24 times its 2006 earnings and 15 times its forward earnings," he said. "This makes it fairly attractive considering the valuations of tier II software companies in India."
The sector average is around 31 for 2006 earnings, with the values ranging between 22 to 40.
For the year to March 2006, Tech Mahindra's net profit was 2.35 billion rupees, up from 1.02 billion the previous year.
Tech Mahindra Chairman Anand Mahindra told reporters after the listing the company now had to keep up with shareholders' expectations. "We promise we will become a top tier IT company soon. We will not be just a tier II company," he said.
Tractor and utility vehicle maker Mahindra & Mahindra holds 51 percent in Tech Mahindra, which provides IT strategy, system implementation and maintenance and other services to telecoms companies.
Telecoms firm BT has a 36 percent stake in the venture, which will drop below 30 percent in three to five years as employees exercise their stock options, BT's director for corporate finance Paul Ringham told Reuters at the listing.
AT&T Inc. has been allotted options worth 9.9 million shares which it can exercise over a period of five years, he said.
Mahindra & Mahindra's holding will also go down as options are exercised, but company officials could not say by how much.
The IPO in early August was oversubscribed 78 times and was priced at the upper end of a 315 to 365 rupees band.
Tech Mahindra Chief Executive Vineet Nayyar said India had only $1.7 billion of a $60 billion global market for telecoms services. "There is a huge opportunity out there," he said.
BT, which also has a fully-owned subsidiary in India, expects revenue from Indian operations, including Tech Mahindra, to rise to $250 million in three years from less than $100 million now, Andy Green, CEO of BT Global Services, said.
(Additional reporting by Hiral Vora)