Tech Mahindra

Tech Mahindra, India's fifth largest software exporter reported 8% sequential increase in consolidated revenues to Rs 1444.87 crore. Revenue growth was backed by 4.46% q-o-q increase in revenues from Telecom services to Rs 1135.08 crore which comprises 78.56% of total revenues. In USD terms, revenues were down 2.43% q-o-q to USD 289 million and stood at USD 295 million on constant currency basis.

OPM surged by 90bps to 16.2% mainly due to decline in personnel expenses on the back of increase in utilization levels and decline in employees and higher service costs and traveling expenses and resulting operating profits were up by 15% to Rs 234.25 crore.

Other income crashed 75% due to lower forex gains which led de-growth in PBIDT by 5% to Rs 249 crore but interest costs increase remain muted and depreciation charges declined, tax rate fell by 533bps to 16.66% boosted the PAT by 5% to Rs 146.87 crore and after taking into account proportional Profit after tax& minority income from Satyam of Rs 131.53 crore, up 29%, adjusted Net profits were up 15% to Rs 276 crore.

Sequential Performance (Consolidated)

For the quarter ended December 2011, Tech Mahindra reported 8% q-o-q growth in revenues to Rs 1444.87 crore. Revenues from Telecom services were up by 4.46% to Rs 1135.08 crore.

OPM was up by 90bps to 16.2% due to 266bps drop in employee costs to 52.18% of sales and the resultant operating profits were up by 15% to Rs 234.25 crore. Other Income declined by 75% to Rs 14.75 crore but Interest costs were up by only 1% to Rs 33.83 crore and depreciation charge fell by 23% to Rs 38.95 crore. The resultant PBT de-growth moderated to 1% to Rs 176.22 crore.

Tax provisioning fell by 25% to Rs 29.35 crore with effective tax rate down 533bps to 16.66%. The resultant PAT thus jumped by 5% to Rs 146.87 crore. Minority Interest surged 367% from Rs 0.51 crore to Rs 2.38 crore. Company has recorded PAT & minority interest from Satyam of Rs 131.53 crore, up 29%. Net profit thus grew by 15% to Rs 276.02 crore.

Revenues grew by 19% y-o-y to Rs 1444.87 crore during the quarter ended December 2011 due to 7.42% growth in Telecom service revenues to Rs 1135.08 crore.

Operating margins however fell by 440bps to 16.2% due to 268bps increase in employee costs to 52.18% of sales and service costs by 124bps to 10.64% of sales. The resultant operating profits de-grew 6% to Rs 234.25 crore. Other Income was down 71% to Rs 14.75 crore. The resultant PBIDT further de-grew by 17% to Rs 249 crore. Interest cost was up 41% to Rs 33.83 crore. Depreciation charge too rose 12% to Rs 38.95 crore. The resultant PBT further de-grew 27% to Rs 176.22 crore.

Tax provision for the quarter declined by 18% to Rs 29.35 crore with effective tax rate up 181bps to 16.66%. The resultant PAT was down 29% to Rs 146.87 crore. The net profit post minority interest from other subsidiaries of Rs 2.38 crore (against Rs 0.56 crore) and PAT & minority interest in Satyam of Rs 131.53 crore (against Rs 51.5 crore in Q3 FY11) stood 7% higher at Rs 276.02 crore.

Nine months performance

Revenue grew 5% to Rs 4070.64 crore.

OPM was down 250bps to 16.7% due to higher recruits and salary hikes, resultant operating profit was down 9% to Rs 680.17 crore. Other Income grew 23% to Rs 119.31 crore mainly on account of forex gains. Interest expense was flat at Rs 89.52 crore, depreciation charges increased 17% to Rs 123.08 crore due to higher capex, provision for taxes also increased 10% to Rs 119.49 crore with effective tax rate up 350bps to 20.36%. Resultant PAT de-grew 13% to Rs 467.39 crore.

Minority interest from other subsidiaries was Rs 3.62 crore (against Rs 0.41 crore). Company also recorded extraordinary income form Satyam of Rs 329.18 crore against Rs 14.8 crore. Consolidated net profit was up 44% to Rs 792.95 crore.

FY2011 Performance (Consolidated)

For the year ended March 2011, consolidated operating revenues grew 11% to Rs 5140.23 crore. In US dollar terms the revenues grew 15.4% to US$ 1126.6 million.

OPM nose-dived by 500bps to 19.5% on the back of higher personnel costs which increased by 251bps to 47.41% of sales. Operating profits fell 11% to Rs 1003.33 crore.

Other income was Rs 117.45 crore, up by 56%. Interest cost more than halved to Rs 99.88 crore and depreciation charge rose 7% to Rs 143.5 crore on the back of higher capital expenditure and the resultant PBT grew 3% to Rs 877.4 crore.

Tax provision decreased 9% to Rs 131.58 crore with effective tax rate down 183bps to 15%. The resultant PAT grew 5% to Rs 745.82 crore. The net profit post minority interest stood at Rs 743.79 crore, up by 6%

After accounting for Satyam losses of Rs 99.6 crore, net profit was down 31% at Rs 700.40 crore.

The number of active clients at the end of the quarter increased to 130 compared to 128 in the sequential quarter.

Top client contributed 35% against 37%, top 5 client' declined to 67% against 68% and top 10 clients' to 77% against 78%.

Employees

The manpower during the quarter declined by 911 during the quarter (807 increase in sequential quarter) employees totaling to 42746 employees. There was decrease in headcount in software by 1447 to 25218, increase in BPO by 544 to 16419 and decline in sales & Support by 8 to 1109.

Utilization including trainees increased 100bps to 73%.

Revenue Mix

The onsite-offshore mix as far as revenue generation is concerned was 39:61, against 37:63 q-o-q.

• Revenue contribution from North America remained same sequentially at 33%; revenues contribution from Europe declined by 200bps to 45% and revenues contribution from Rest of World increased by 200bps to 22% of total revenue.

• Debt was Rs 1376 crore as of December 31, 2011.

• Cash and Cash equivalent was Rs 321 crore on balance sheet as of December 31, 2011.

As of December 31, 2011, Promoters hold 70.9% (70.98% at end of sequential quarter), FII's hold 4.92% (4.44% at end of sequential quarter), DII's hold 15.22% (15.34% at end of sequential quarter), and others hold 8.96% (9.24% at end of sequential quarter).

Valuation

The shares of Tech Mahindra were trading at Rs 645 on BSE on 9^th February 2012, at 7.44 times Q3 FY12 EPS.

Tech Mahindra: Consolidated results