Tech Mahindra 3QFY2014 performance highlights and results update
February 6, 2014, Thursday, 06:13 GMT | 01:13 EST | 11:43 IST | 14:13 SGT
Tech Mahindra reported its 3QFY2014 results, which surprised positively on the revenue front while they came inline with our expectations on the operating margin front. The key highlight of the result is the 4.4% qoq USD revenue growth, which is higher than many of its other tier-I peers. During the quarter, Tech Mahindra signed 11 deals with TCV worth above US$200mn. The ramp-up on the recently won deals will lend visibility to revenue growth and is expected to offset the decline in revenues from BT. We maintain our Accumulate rating on the stock.
Result highlights: For 3QFY2014, Tech Mahindra reported a revenue of US$791mn. IT services revenues grew by 3.4% qoq to US$713mn while BPO revenues grew 13.4% qoq to US$78mn. In INR terms, revenues came in at Rs.4,899cr, up 2.7% qoq. The company’s EBITDA margin declined marginally by 9bp qoq to 23.2%, as transition costs in large deals were partially offset by lower SG&A expenses. The reported profit came in at Rs.1,010cr, up 41% qoq. The company had an exceptional gain of ~Rs.347cr due to tax write backs and other provision reversal during the quarter; adjusting to that the PAT came in lower than estimated at Rs.663cr, down 8% qoq, due to loss at other income level of Rs.46cr for the quarter as against a gain of Rs.38cr in 2QFY2014.
Outlook and valuation: The Management indicated that the company remains confident of growth from the non-BT business with it continues to see a robust deal pipeline across geographies. Tech Mahindra has been able to scale up well across verticals through its focused approach on large deals (consistent increase in US$50mn+ clients to 11 from 7 a year ago and it added 11 deals with US$0.2bn+TCV in 3QFY2014). Tech Mahindra appears to be well placed in order to address the demand trends shaping the future, with unique advantages compared to peers in areas like Network, Communication and Analytics. We expect a CAGR of 15.2% and 23.0% in USD and INR revenue respectively over FY2013-15E. The PAT is expected to grow at a CAGR of 23% over FY2013-15. We value Tech Mahindra at 14.5x FY2015E EPS and maintain our Accumulate rating on the stock with a target price of Rs.1,955.