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TechM’s 3Q11 normalised revenue growth of 1.7% qoq
was 3% below our estimates as reported volume were
flat qoq. Non-BT business growth remain volatile – up
just 0.5% qoq; BT business was in-line
Margins were down 120bp qoq due to INR appreciation
and flat volume. PAT get support from ‘other income’ as
cash lease rentals in the Etilsalat DB deal kick-in
Volatility in financials and a subdued near-term demand
outlook for telecom vertical remain our key concerns.
Maintain UNDERPERFORM.
1Q11: qoq volatility in non-BT business a drag.
Consolidated revenues (ex-BT contract restructuring fee)
were up 1.7% to US$257.8m (3.2% below our estimates);
in INR terms were down 2.0% to Rs11.6bn. Management
reported flat volumes qoq; revenue growth was mainly from
cross-currency gains, as BT revenues were up 3.0% in
US$ terms (flat at GBP74m). Non-BT business, ex 2Q’s
pass-through revenues, was up just 0.5%, mainly due to
qoq volatility in the system integration business, according
to the management.
Margin management remains a challenge. Normalised
EBITDA margin was down 120bp qoq to 17.2% (SCS est.
of 19.9%) mainly from currency hit and absence of a major
lever. TechM’s peak offshore share (63%, flat qoq) and
utilization (76%, +1% qoq) restricts margin management in
our view. We do not see pricing recovery at-least in FY12
and potentially high transition costs in the US$100m Airtel
deal (initiated in 3Q; billing to start in 4Q11/1Q12) could
also be a near-term headwind.
Other income likely to support near-term earnings. FX
gains (Rs350m in 3Q11) and other income (+300% qoq)
help PAT grow 10.4% qoq to Rs2.1bn (in-line with our
Rs2.0bn estimate). We expect large hedge positions and
cash lease rentals in Etilsalat DB deal (cash balance was
up 132% qoq) should continue to support near term
earnings, in our view.
…Stock movement to track pace of Satyam merger. We
see no organic triggers given the quarterly volatility in the
SI business and a subdued demand outlook in the Telecom
vertical. Our outlook on Satyam (IN-LINE) remains
cautious. We maintain UNDERPERFORM and our Rs603
SOTP-based price target that values the organic biz at
50% discount to Infosys’ target P/E and Rs197 for the
Satyam stake.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
TechM’s 3Q11 normalised revenue growth of 1.7% qoq
was 3% below our estimates as reported volume were
flat qoq. Non-BT business growth remain volatile – up
just 0.5% qoq; BT business was in-line
Margins were down 120bp qoq due to INR appreciation
and flat volume. PAT get support from ‘other income’ as
cash lease rentals in the Etilsalat DB deal kick-in
Volatility in financials and a subdued near-term demand
outlook for telecom vertical remain our key concerns.
Maintain UNDERPERFORM.
1Q11: qoq volatility in non-BT business a drag.
Consolidated revenues (ex-BT contract restructuring fee)
were up 1.7% to US$257.8m (3.2% below our estimates);
in INR terms were down 2.0% to Rs11.6bn. Management
reported flat volumes qoq; revenue growth was mainly from
cross-currency gains, as BT revenues were up 3.0% in
US$ terms (flat at GBP74m). Non-BT business, ex 2Q’s
pass-through revenues, was up just 0.5%, mainly due to
qoq volatility in the system integration business, according
to the management.
Margin management remains a challenge. Normalised
EBITDA margin was down 120bp qoq to 17.2% (SCS est.
of 19.9%) mainly from currency hit and absence of a major
lever. TechM’s peak offshore share (63%, flat qoq) and
utilization (76%, +1% qoq) restricts margin management in
our view. We do not see pricing recovery at-least in FY12
and potentially high transition costs in the US$100m Airtel
deal (initiated in 3Q; billing to start in 4Q11/1Q12) could
also be a near-term headwind.
gains (Rs350m in 3Q11) and other income (+300% qoq)
help PAT grow 10.4% qoq to Rs2.1bn (in-line with our
Rs2.0bn estimate). We expect large hedge positions and
cash lease rentals in Etilsalat DB deal (cash balance was
up 132% qoq) should continue to support near term
earnings, in our view.
…Stock movement to track pace of Satyam merger. We
see no organic triggers given the quarterly volatility in the
SI business and a subdued demand outlook in the Telecom
vertical. Our outlook on Satyam (IN-LINE) remains
cautious. We maintain UNDERPERFORM and our Rs603
SOTP-based price target that values the organic biz at
50% discount to Infosys’ target P/E and Rs197 for the
Satyam stake.
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