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Tech Mahindra
For 3QFY2011, Tech Mahindra reported disappointing set of numbers. The USD revenue
came in at US $268.9mn (v/s our expectation of US $276.7mn), up merely 1.6% qoq due to
flat volume growth qoq. Revenue growth was primarily driven by BT account, which grew by
3.0% qoq with revenue coming at US $118.3mn (£74mn). Non-BT accounts grew merely by
0.7% qoq to US $150.6mn due to laggard growth in system integration work, which the
company does in emerging markets. Excluding emerging markets, non-BT accounts grew by
4.0% qoq. In constant currency terms, revenue growth was flattish for non-BT accounts.
During the quarter, the company’s EBITDA margin dipped by 111bp qoq to 20.6%
(excluding the one-off items in 2QFY2011) because of wage hike of ~3% given to overseas
employees and stronger INR against USD taking away gains due to better utilisations and
SG&A efficiency.
Management is witnessing sluggishness in demand revival for IT spending from its TSP clients
and foresees them to return to spending only in 2HCY2011. However, the company expects
its second top client AT&T to record strong growth. Thus, we expect growth in non-BT
accounts to be nominal at a 4% CQGR over 3QFY2011–4QFY2012E, with BT revenue
expected to be flat. We maintain Buy on the stock with an SOTP Target Price of `799.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Tech Mahindra
For 3QFY2011, Tech Mahindra reported disappointing set of numbers. The USD revenue
came in at US $268.9mn (v/s our expectation of US $276.7mn), up merely 1.6% qoq due to
flat volume growth qoq. Revenue growth was primarily driven by BT account, which grew by
3.0% qoq with revenue coming at US $118.3mn (£74mn). Non-BT accounts grew merely by
0.7% qoq to US $150.6mn due to laggard growth in system integration work, which the
company does in emerging markets. Excluding emerging markets, non-BT accounts grew by
4.0% qoq. In constant currency terms, revenue growth was flattish for non-BT accounts.
During the quarter, the company’s EBITDA margin dipped by 111bp qoq to 20.6%
(excluding the one-off items in 2QFY2011) because of wage hike of ~3% given to overseas
employees and stronger INR against USD taking away gains due to better utilisations and
SG&A efficiency.
Management is witnessing sluggishness in demand revival for IT spending from its TSP clients
and foresees them to return to spending only in 2HCY2011. However, the company expects
its second top client AT&T to record strong growth. Thus, we expect growth in non-BT
accounts to be nominal at a 4% CQGR over 3QFY2011–4QFY2012E, with BT revenue
expected to be flat. We maintain Buy on the stock with an SOTP Target Price of `799.
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