Tech Mahindra Ltd (NSE:TECHM) (BSE:532755)

Tech Mahindra Limited (Tech Mahindra or TechM) is an India-based information technology (IT) provider. The Company offers information technology services and solutions. It operates in two business segments: Information Technology (IT) Business and Business Processing Outsourcing (BPO). It offers a range of IT services and industry specific solutions in spaces of consulting, enterprise and telecom solutions, and platforms and reusable assets. The Company’s services include telecom services, application outsourcing, infrastructure outsourcing, engineering services, BPO, platform solutions and mobile value added services. It provides solutions and services across verticals with its principal operations in the United Kingdom, United States, Germany, the United Arab Emirates, Egypt, Singapore, India, Thailand, Taiwan, Malaysia, Philippines, Canada and Australia. It has a global foot print with around 40 sales offices and 72 delivery centers in approximately 51 countries around the world.

Official website: www.techmahindra.com

Tech Mahindras 4QFY2015 results have come in much lower than our expectations. Sales came in at US$984mn V/s an expected US$989mn and V/s US$924mn in 3QFY2015, a qoq growth of 6.5%. Revenue contribution from its acquisitions like LCC and Sofgen was at US$100mn, adjusting for which the the revenue de-grew by 4.3% qoq (1.2% dip on constant currency [CC] basis). On the operating front, the EBITDA margin came in at 15.2% V/s 18.4% expected and V/s 20.2% in 3QFY2015, a dip of 499bp qoq. Thus, the Adj. PAT came in at Rs472cr V/s Rs751cr expected and V/s Rs777cr in 3QFY2015, a qoq de-growth of 39.2%. Apart from the lower than expected EBDITA margin, a forex loss of Rs154.1cr booked during the quarter also impacted the net profit. Given that the stock price has corrected significantly, we maintain our Buy rating on the stock. Result highlights: Tech Mahindra’s 4QFY2015 results have come in much lower than our expectations. Sales came in at US$984mn V/s an expected US$989mn and V/s US$924mn in 3QFY2015, a qoq growth of 6.5%. Revenue contribution from its acquisitions like LCC and Sofgen was at US$100mn, adjusting for which the the revenue de-grew by 4.3% qoq (1.2% dip on constant currency [CC] basis). On the operating front, the EBITDA margin came in at 15.2% V/s 18.4% expected and V/s 20.2% in 3QFY2015, a dip of 499bp qoq. One of the reasons for the dip in the EBDITA margin is the utilization levels, which came in at 71% V/s 74% in 3QFY2015, and wage hikes. Thus, the Adj. PAT came in at Rs472cr V/s Rs751cr expected and V/s Rs777cr in 3QFY2015, a qoq de-growth of 39.2%. Apart from the lower than expected EBDITA margin, a forex loss of Rs154.1cr booked during the quarter also impacted the net profit. Outlook and valuation: The Management remains confident of reverting back to the original profitability, by FY2017-18. We expect a CAGR of 20.0% and 21.1% in USD and INR revenue respectively over FY2015-17E, driven by acquisitions. The PAT is expected to grow at a CAGR of 21.2% over FY2015-17. We maintain our Buy rating on the stock, given the recent correction in the stock price, and on account of conducive valuations.

Source: http://www.angelbroking.com

Tech Mahindra has announced its 1QFY2016 results, which are marginally higher qoq on the sales front and ahead of our expectation on the net profit front. The company posted a 0.5% qoq growth in USD revenues to US$989mn (V/s an expected US$983mn and V/s US$984mn in 4QFY2015). The EBDITA margin and EBIT margin came in line with our expectation at 14.9% and 12.1%, registering a dip of 32bp and 26bp qoq, respectively. Consequently, the PAT came in at Rs676cr V/s an expected Rs556cr and V/s Rs472cr in 4QFY2015 a growth of 43.2% qoq. This was mainly on back of other income, which came in at Rs136.6cr (on back of forex gains) for the quarter V/s a loss of Rs65cr in 4QFY2015. We maintain our Buy rating on the stock with a target price of Rs646. Result highlights: Tech Mahindra posted a 0.5% qoq growth in USD revenues to US$989mn (V/s an expected US$983mn and V/s US$984mn in 4QFY2015). The quarter’s performance was impacted by a dip in the communication domain which is 52.7% of sales in 1QFY2016 V/s 55.3% of sales in 4QFY2015. The other domains showed an improvement or same performance as in 4QFY2015. The EBDITA margin and EBIT margin came in line with our expectation at 14.9% and 12.1%, registering a dip of 32bp and 26bp qoq, respectively. Consequently, the PAT came in at Rs676cr V/s an expected Rs556cr and V/s RS472cr in 4QFY2015, a growth of 43.2% qoq. This was mainly on back of other income, which came in at Rs136.6cr (on back of forex gains) for the quarter V/s a loss of Rs65cr in 4QFY2015. On the operating front, the utilization level for the quarter stood at 74% V/s 71% in 4QFY2015, while the attrition rate stood steady at 19.1%. Client addition during the quarter remained tepid, with total clients at 770 (in 1QFY2016) V/s 767 in 4QFY2015. Outlook and valuation: The Management remains confident of reverting back to the original profitability by FY2017-18. We expect a CAGR of 12.0% and 13.0% in USD and INR revenue respectively over FY2015-17E, driven by acquisitions. The PAT is expected to grow at a CAGR of 8.0% over FY2015-17. We maintain our Buy recommendation on the stock.

Source: http://www.angelbroking.com/