Tech Mahindra posted a marginally better than expected revenue performance with consolidated dollar revenues of US$329mn (versus expectation off US$326mn). The robust sequential growth 9.8% was largely on the back of integration of HGS (US$37mn) and Comviva (US$6mn) businesses. On an organic basis, the dollar revenues were flat qoq.
As expected, the top client BT de-grew materially (~3% qoq de-growth in dollar terms) on the back of continued rationalization and impact of seasonally weak quarter. The non-BT business grew 2% qoq (organic dollar terms) on the back of deals won in Q2 FY13. Company expects the correction in BT to continue for a couple of quarters compensated by the better than expected deals wins in non-BT business (especially on the managed services, transformational business side)
Segment wise performance: Growth in Europe/Row (+10%/26% qoq) and Top 2-5 clients (+30% qoq) was largely buoyed by the in-organic business growth (HGS). On the employee front, the employee base continued to rationalize. While the no. of employees corrected by 1420 qoq, on an organic basis the correction was higher at 2214 employees. The attrition rate also increased qoq to 18% (versus 16% in last quarter). Management attributed this correction continued rationalization of low margin projects as well as reduction in SLAs of certain large BPO programs.
OPM for the quarter improved 30bps qoq to 21% better than our expectation (100 bps correction qoq). The improvement was on largely on the back of improvement in utilization (+200bps qoq) due to the correction in employee base. This and the better than expected Comviva profitability (due to seasonality) more than offset the large deal transitions costs that happened during the quarter. Better than expected OPM as well as forex gain resulted in a higher than estimated PAT of Rs2758mn.
We liked the Q3 FY13 performance for Tech M especially the improving traction on the non BT business. The improvement in non-BT deal pipeline/wins (U$280mn+ deal wins in past two quarter) owing to improvement in client spending, established expertise in telecom managed services/transformational projects as well as strong synergies with Mahindra Satyam continues to keep us enthused. We maintain our positive stance/BUY recommendation on Tech M and increase our 9-month TP to Rs1156.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|OPM (%)||21.0||20.7||31 bps||16.2||479 bps|
|Effective Tax Rate(%)||24.5||12.4||-||16.7||-|
|Adj. PAT margin (%)||13.5||10.9||260 bps||10.0||350 bps|
|Share of Satyam Profits||341||1,185||(71.2)||1,315||(74.1)|
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|Revenues (Rs m)||54,897||67,382||74,055||79,622|
|yoy growth (%)||6.8||22.7||9.9||7.5|
|Reported PAT (Rs m)||11,630||12,527||14,038||15,137|
|yoy growth (%)||80.6||7.7||12.1||7.8|
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