Tech Mahindra's Hutch BPO buy margin dilutive: Citi

Software services provider Tech Mahindra’s acquisition of Hutchison Global Service is likely to be margin dilutive, said brokerage Citi, keeping its neutral rating on the stock.

Tech Mahindra on Tuesday bought Hutchison Whampoa’s BPO business in India for $87.1 million, Reuters reported .

Hutchison Global Services provides services to the clients of Hutchison’s mobile firm in the UK, Ireland and Australia, the report said quoting a statement.

“Considering that the acquisition serves to add further telecom/call center exposure, the benefits in terms of service lines/capabilities (and hence the rationale for the acquisition) are not quite compelling in our view,” Citi said in its report.

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Hutchison Global has 11,500 employees compared with Tech Mahindra’s 15,000.

“Management does not envisage any layoffs or changes in compensation as part of the acquisition. We expect the deal to be net margin dilutive, due to adverse business mix and higher tax rates,” Citi said.

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It said the concerns about Tech Mahindra’s business stayed as the challenges to its business continued.

At 11:26 a.m, shares of Tech Mahindra were up 0.6 percent at Rs 828.