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Tech Mahindra Limited
Mixed Dec-10 Results; Maintain UW
Quick Comment: TechM reported a mixed bag of
Dec-10 results. Revenue of Rs12.1bn (+1.6% QoQ,
5.9% YoY) was below our expectations. However, net
income of Rs2bn (+11% QoQ, 19% YoY) was ahead of
our expectations due to higher-than-expected other
income and lower taxes. We believe the anemic revenue
growth at TechM remains a matter of concern, and we
maintain our UW rating on the stock.
Dec-10 Results: Revenue came in at Rs12.1bn (+1.6%
QoQ, 5.9% YoY). Gross margin improved to 34.9%
(+470bp QoQ, -180bp YoY). EBIT margin of 17.8%
(+170bp QoQ, -310bp) was marginally below our
forecast. Recurring net income was Rs2bn (+10% QoQ,
+19% YoY). Reported net income (including prior period
items from Satyam) was at Rs2.5bn (US$56.7mn).
Key highlights: 1) US and Europe revenues grew
faster than company average, up 4.6% QoQ and 2.9%
QoQ, respectively. However, revenue from rest of the
world declined 9% QoQ. 2) Top client revenue was
flattish YoY. BT revenue totaled £74mn, and
management maintained its view of stable BT revenues
near term. 3) TechM added 200 net employees in 3Q11.
Conference call takeaways: 1) Tech Mahindra plans to
consolidate Satyam’s profits as income from an
associated company with a one-quarter lag in the
coming quarters. 2) Management believes recovery in
the telecom sector remains sluggish and it is not seeing
any pick up in discretionary spending in the sector. It
believes discretionary spending will start picking up in
2H11. 3) Tech Mahindra plans to recruit 4,000 hires from
campuses and off-campus venues in the coming
quarters. Tech Mahindra gave 2,500 campus offers for
F2011.
Maintain Underweight: We see no near-term
fundamental triggers for TechM and believe that the
stock could stay range-bound in anticipation of the
imminent integration with Mahindra Satyam.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Tech Mahindra Limited
Mixed Dec-10 Results; Maintain UW
Quick Comment: TechM reported a mixed bag of
Dec-10 results. Revenue of Rs12.1bn (+1.6% QoQ,
5.9% YoY) was below our expectations. However, net
income of Rs2bn (+11% QoQ, 19% YoY) was ahead of
our expectations due to higher-than-expected other
income and lower taxes. We believe the anemic revenue
growth at TechM remains a matter of concern, and we
maintain our UW rating on the stock.
Dec-10 Results: Revenue came in at Rs12.1bn (+1.6%
QoQ, 5.9% YoY). Gross margin improved to 34.9%
(+470bp QoQ, -180bp YoY). EBIT margin of 17.8%
(+170bp QoQ, -310bp) was marginally below our
forecast. Recurring net income was Rs2bn (+10% QoQ,
+19% YoY). Reported net income (including prior period
items from Satyam) was at Rs2.5bn (US$56.7mn).
Key highlights: 1) US and Europe revenues grew
faster than company average, up 4.6% QoQ and 2.9%
QoQ, respectively. However, revenue from rest of the
world declined 9% QoQ. 2) Top client revenue was
flattish YoY. BT revenue totaled £74mn, and
management maintained its view of stable BT revenues
near term. 3) TechM added 200 net employees in 3Q11.
consolidate Satyam’s profits as income from an
associated company with a one-quarter lag in the
coming quarters. 2) Management believes recovery in
the telecom sector remains sluggish and it is not seeing
any pick up in discretionary spending in the sector. It
believes discretionary spending will start picking up in
2H11. 3) Tech Mahindra plans to recruit 4,000 hires from
campuses and off-campus venues in the coming
quarters. Tech Mahindra gave 2,500 campus offers for
F2011.
Maintain Underweight: We see no near-term
fundamental triggers for TechM and believe that the
stock could stay range-bound in anticipation of the
imminent integration with Mahindra Satyam.
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