Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)/Tech M expanding its collaboration with telecommunication giant AT&T

Update on Indian market: On Monday, Nifty ended above 11,000 mark led by a rally in the heavyweight financial stocks. Yes Bank, Maruti Suzuki, L&T were among the biggest gainers in Sensex, surging up to 4.2%. HCL Tech, Infosys, Tech Mahindra emerged among the biggest losers, shedding up to 1.5%

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)

VBL completed its QIP of Rs 9,000 mn on 4^th Sept 2019. VBL approved the allotment of 1,47,05,882 equity shares of Face Value Rs 10/- each to the eligible qualified institutional buyers at issue price of Rs 612 per equity share aggregating to ~ Rs 9,000 mn pursuant to the Issue. Total Borrowings as on Jun-19 was Rs 32,533 mn and after this issuance, the debt will reduce to Rs 23,533 mn. VBL plans to use the QIP proceeds to repay the debts, this will reduce the interest cost and may help PAT margins to expand.

Tech M expanding its collaboration with telecommunication giant AT&T

Tech Mahindra Ltd., a leadingprovider of digital transformation, consulting and business reengineering services and solutions, announced expansion of its strategic collaboration with AT&T to accelerate AT&T’s IT network application, shared systems modernization and movement to the cloud. Tech Mahindra will assume management of many of the applications which support AT&T’s network and shared systems.

Tech M’s deal with AT&T is a multi-year agreement which 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 program will help drive sustainable operational improvement across the network and software development domains.

When asked about the deal Mr. Jon Summers, CIO of AT&T Communications stated that their agreement with Tech Mahindra is another step forward in delivering greater flexibility across their IT operations. This includes optimizing core operations and modernizing internal network applications to accelerate innovation as AT&T march forward to their goal of a nationwide 5G network by the first half of 2020. He also mentioned that this collaboration with Tech Mahindra will ultimately help accelerate its network operations and overall technology leadership.

MD & CEO of Tech M, Mr. C P Gurnani mentioned that this deal is a step towards elevating Tech Mahindra’s long-standing strategic relationship with AT&T to help make the vision of a 5G-enabled future, a reality. As part of TechMNxt charter, Tech Mahindra is betting big on 5G — the network of the future and is focused on technology-led innovation to enable digital transformation for their customers globally.

According to the management, Tech M and AT&T aim to improve the agility in rolling out and supporting networks of the future, while improving returns on investment through technology-led transformation AT&T and Tech Mahindra will integrate several world-class technologies and platforms in areas like artificial intelligence, DevOps, data analytics and 5G.

Consensus Estimate (Source: marketscreener website)

The closing price of VBL was Rs 623/- as of 09-September-19. It traded at 43x/33x/25x the consensus EPS for CY 19E/CY 20E /CY 21E EPS of Rs 14.7/19.0/25.7 respectively· Consensus target price of Rs 720/- implies a PE of 28x on CY21E EPS of Rs 25.7 

The closing price of Tech M was Rs 720/- as of 09-September-19. It traded 15.2x/13.6x/12.3x the consensus EPS for FY20E/FY21E/FY22E EPS of Rs 47.5/53.1/58.7 respectively. Consensus target price of Rs 754/- implies a PE of 14.1x on FY21E EPS of Rs 53.1