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Tech Mahindra Ltd. (TechM) | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


07 Nov 2013





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Tech Mahindra Ltd. (TechM) | Q2FY14 Result Update Mixed-Performance; Solid Deal Pipeline: Maintain BUY | Tech Mahindra Ltd (TechM) Q2FY14 performance was ahead of our estimate on revenue and EBITDA fronts. However, net profit was slightly below our expectation due to lower other income. During the quarter, $-revenues grew by 4.7% Q/Q to $758 mn (INSPL est: $744mn) led by 4.7% Q/Q growth in each onsite/offshore revenue. Driven by weak INR, rupee revenue went up 16.3% Q/Q to Rs.47.7 bn [v/s INSPL est: Rs.46.7bn]. EBITDA margin during the quarter expanded ~222bps Q/Q to 23.3% [v/s INSPL estimate of 184bps Q/Q expansion] due to currency (300 bps Q/Q) tailwinds, partially offset by negative impact of increase in SG&A and employee expenditure (78 bps Q/Q). TechM reported net forex loss of Rs.267 mn (v/s loss of Rs.1247 mn in Q1FY14). Tax outgo in Q2FY14 was at Rs.2,840 mn (v/s Rs. 2,328 mn in Q1FY14), resulting in tax rate of 28.3% (v/s 25.0% in Q1FY14 and 20.6% in Q2FY13). During the quarter, TechM reported minority interest/extraordinary items of Rs.-4.0/Rs.0.0 mn [v/s Rs.130/Rs.0.0 mn in Q1FY14]. Net profit went up 4.8% Q/Q to Rs.7,191 mn [v/s Rs.6,863 mn in Q1FY14]. Excluding forex, Adj.PAT increased by 32.8% Q/Q to Rs.7,458 mn (v/s Rs.5,616 mn in Q1FY14). Management sounded positive on overall deal pipeline and expect strong momentum in retail, BFSI, and Technology & Media going ahead. Valuation & Outlook: At CMP of Rs.1580, the stock is trading at 12.5x FY14E and 11.3x FY15E revised EPS estimate, which looks attractive relative to peers like TCS, Infosys and HCLT valuations. Further, the company’s strong multi-year and multi-million dollar deal wins across key vertical increase revenue visibility. All recent acquisitions integrated well and contributed to overall revenue growth during the quarter. Additionally, the quick ramp-up of recent deal wins should support the revenue growth trajectory. Further, the impact of wage hike and amortization is likely to be take care by the favourable currency. We believe portfolio diversity and scalability due to the merger should lead to re-rating in stock from here on. As a result, we raise our target price of Rs.1,868 [13.5x FY15] with BUY on TechM.

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