Tech Mahindra (Q1 FY14)

India Infoline News Service | Mumbai |

Q1 FY14 was the first quarter for the consolidated results of the merged entity i.e. Mahindra Satyam + Tech Mahindra. The consolidated revenues came in better than expected at US$724mn – a growth of 3.7% qoq in dollar terms.

CMP Rs1,266, Target Rs1,450, Upside 14.5%
  • Q1 FY14 was the first quarter for the consolidated results of the merged entity i.e. Mahindra Satyam + Tech Mahindra. The consolidated revenues came in better than expected at US$724mn – a growth of 3.7% qoq in dollar terms. This performance was supported by inorganic contribution of complex IT acquisition resulting in constant currency growth of 4.4% qoq. On an organic basis too, the reported dollar revenue growth of 2.6% qoq was higher than our estimates. On the rupee front, the rupee revenues were at Rs41bn –a growth of 9% qoq (bolstered by the weak rupee)


  • The growth was broad based across verticals with most of them showing decent traction except BFSI. Amongst verticals, the growth was led by telecom, manufacturing and TME verticals which grew in-line with company average. On the other hand, BFSI has a second quarter of de-growth (-6.7% qoq). Within geographies, on the back of the complex IT integration, Americas growth was robust at 11% qoq.  RoW geography de-grew in the quarter after strong growth in past 2-3 quarters and on the back of weak India business. Client additions continued the strong streak with 51 additions and US$10mn+/20mn+/50mn+ clients increasing by 4/1/1 respectively. Top 2-5 clients drove the growth posting  8% qoq expansion in revenues.


  • OPM came largely in-line with expectation expanding 60bps to 21.1%. Excluding the impact of low margin business of Complex IT, the operating margin was nearly 21.8% (+130bps qoq). The operating margin performance during the quarter was impacted by visa and integration costs (80bps) which was more than offset by 130bps tailwind from the weakened rupee. Strong up-tick in other income (owing to exchange gains of Rs1.3bn) and lower interest outgo resulted in PAT growing 8% qoq to Rs6.9bn. On the employee front, additions of software professionals were strong (+2.3% qoq). Attrition too cooled off further to 15% on a TTM basis.


  • Overall, the Q1 FY14 result for the Tech Mahindra (combined) was better than expected. There has been marked improvement in deal wins with three large deals signed during the quarter (TCV of US$50-70mn each).  Though the outlook on BT has not improved, the improved traction from rest of the business will help support  the revenue momentum. Robust start to FY14, improving deal traction and upbeat management commentary provide strong comfort in maintaining Tech Mahindra as our preferred pick in the sector.  We expect the company to register 12%/18% dollar revenue/rupee earnings CAGR over FY13-15Eand  now value the company at 12x FY15E earnings which results in an increased 9-month TP of Rs1,450. Maintain BUY.

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Net sales
41,032
37,673
8.9
33,727
21.7
Operating profit
8,645
7,713
12.1
7,392
17.0
OPM (%)
21.1
20.5
60 bps
21.9
(85) bps
Depreciation
(1,174)
(1,207)
(2.7)
(915)
28.3
Interest
(223)
(253)
-
(251)
-
Other income
2,073
381
444.1
1,129
83.6
PBT
9,321
6,634
40.5
7,355
26.7
Tax
(2,328)
(1,461)
59.3
(1,911)
21.8
Effective tax rate (%)
25.0
22.0
-
26.0
-
Other provisions / minority etc
(130)
(137)
-
(40)
-
Adjusted PAT
6,864
5,036
36.3
5,404
27.0
Adj. PAT margin (%)
16.7
13.4
336 bps
16.0
71 bps
Exceptional items
-
1,340
-
-
-
Reported PAT
6,864
6,376
7.6
5,404
27.0
EPS (Rs)
29.6
BSE 514.25 12.30 (2.45%)
NSE 514.25 10.65 (2.11%)

***Note: This is a NSE Chart

 

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