CTC acquisition by Tech Mahindra does not excite the street

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Tier one IT services provider Tech Mahindra Ltd, which is on a wave of acquisitions, has bought Eastern European IT services company Com Tec Co IT (CTC) for 310 million euros, which is aimed at customers in the insurance sector. Tech Mahindra also acquired a 25% minority stake in two insurance technology platforms called SWFT and Surance for 20 million euros.

In a call with analysts, management said CTC has an industry-leading earnings before interest and tax (Ebit) margin and will be accretive to earnings per share, free cash flow and return on equity. In CY18/CY19/CY20, CTC achieved revenue of EUR 36.6 million/EUR 57.6 million/EUR 71.3 million, respectively, management said.

This acquisition and its stake in two platforms is poised to strengthen Tech Mahindra’s presence in the insurance vertical. But the street isn’t too enthusiastic about it. Reacting to the development, the company’s shares fell about 1.2% on the National Stock Exchange when trading opened on Tuesday.

Some analysts believe that this acquisition will not make a difference to Tech Mahindra’s earnings. “The acquisition will strengthen TechM’s digital engineering capabilities and expand its European footprint with the addition of over 700 skilled IT professionals. Given the size of the acquisition (

Some others point out that so far in FY22, this is Tech Mahindra’s 10th acquisition with a total capital outlay of approximately $880 million, which is higher than previous years. and, therefore, not very comforting.

“Tech Mahindra’s portfolio has capability gaps that require mergers and acquisitions (M&A). We agree with the acquisition philosophy but not comfortable with the pace of acquisitions,” analysts said. of Kotak Institutional Equities in a report. The report adds that Tech Mahindra is leaning even more towards buying as investors prefer building and Allyis’ acquisitions to boost customer profile are a good example of this.

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