Tech Mahindra surges over 5% after securing multi-year deal with AT&T

Shares of Tech Mahindra (TechM) gained over 5 per cent to Rs 732 apiece on the BSE in the early morning deals on Friday, a day after the company announced a strategic and possibly largest-ever deal with leading American network operator AT&T.

At 09:35 am, the stock was trading 4.22 per cent higher at Rs 724.70 apiece on the BSE. In comparison, the benchmark S&P BSE Sensex was quoting 197 points or 0.54 per cent higher at 36,841 levels.

This deal will accelerate AT&T’s information technology (IT) network application, shared systems modernisation, and movement to the cloud. TechM will assume management of many of the applications which support AT&T’s network and shared systems. This is the largest deal the company has won to date although deal financials have not been disclosed, Business Standard reported quoting sources.

The multi-year agreement will enable AT&T to focus on core objectives, including having the most advanced software defined 5G network, and migrate the majority of its non-network workloads to the public cloud by 2024. This comprehensive programme will help drive sustainable operational improvement across the network and software development domains.

Jon Summers, chief information officer, AT&T Communications, said, “Our agreement with TechM is another step forward in delivering greater flexibility across our IT operations. This includes optimising our core operations and modernizing our internal network applications to accelerate innovation as we march forward to our goal of a nationwide 5G network by the first half of 2020."

At the bourses, shares of Tech Mahindra have underperformed market as well as its large-cap peers on YTD (year-to-date) basis. The stock has slipped nearly 4 per cent as compared to around 2 per cent rise in the S&P BSE Sensex. Infosys has rallied over 26 per cent while TCS has gained 17 per cent during the period, ACE Equity data shows. HCL Technologies has spurted over 15 per cent while Wipro has given a modest return of 3 per cent. The S&P BSE IT index, on the other hand, has added 15 per cent. 

Reiterating 'BUY' on sequential acceleration in earnings per share (EPS) growth, analysts at IIFL said they believe the stock has limited downside. "It is trading at 12.7x its FY21ii P/E, at a 25 per cent discount to peers. Announcement of large deal wins could lead to the stock’s rerating. We forecast 12 per cent EPS CAGR over FY20ii-22ii," they wrote in a note dated September 5. However, the brokerage sees client concentration as key risk to the company. 

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