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Tech Mahindra Ltd (Q1 FY15)

Tech M’s constant currency dollar revenue growth at 2.8% qoq was marginally below our expectation.

August 04, 2014 3:59 IST | India Infoline News Service
CMP Rs2,100, Target Rs2,250, Upside 7.2% 
  • Slightly disappointing revenue growth in Q1 FY15; strong deal wins has positioned company for industry-leading growth in FY15/16

  • Growth driven by Top clients and US region; employee addition continue to be robust 

  • Substantial OPM decline came as a negative surprise; significant recovery likely in near term 

  • Reduce earnings estimates by 7-9% on lower operating margin assumptions; cut rating to Accumulate on limited re-rating potential

Result table
(Rs mn)
Q1 FY15
Q4 FY14
% qoq
Q1 FY14
% yoy
Net sales
51,215
50,581
1.3
41,032
24.8
Operating profit
9,284
10,718
(13.4)
8,645
7.4
OPM (%)
18.1
21.2
(306) bps
21.1
(294) bps
Depreciation
(1,492)
(1,429)
4.4
(1,174)
27.1
Interest
(41)
(97)
(57.5)
(223)
(81.5)
Other income
893
(866)
(203.0)
2,073
(56.9)
PBT
8,644
8,325
3.8
9,321
(7.3)
Tax
(2,308)
(2,091)
10.4
(2,328)
(0.9)
Effective tax rate (%)
26.7
25.1
1.6
25.0
1.7
Minority
(29)
(91)
-
(130)
(78.0)
Adjusted PAT
6,307
6,143
2.7
6,864
(8.1)
Adj. PAT margin (%)
12.3
12.1
17 bps
16.7
(441) bps
Exceptional
-
-
-
-
-
Reported PAT
6,307
6,143
2.7
6,864
(8.1)
EPS (Rs)
27.1
26.4
2.7
29.5
(0.9)
Source: Company, India Infoline Research

Slightly disappointing revenue growth; strong deal wins has positioned company for industry-leading growth in FY15/16

Tech M’s constant currency dollar revenue growth at 2.8% qoq was marginally below our expectation. With pricing remaining stable, revenue growth was volume driven. Apart from being a seasonally weak quarter for Comviva, company had other revenue headwinds in the form of completion of a short-term high volume project (for a Nigerian company) in Q4 FY14 and termination of BT restructuring fees (US$2.6mn in Q4 FY14). Effort mix further shifted onsite by 100bps to 54% (300bps shift since Q2 FY14) with the company h

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