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TechM’s 1Q12 normalised revenue growth of 4.2% qoq
was in-line with our estimates. Non-BT traction continued –
revenues up 5.5% qoq; BT business was flat.
Margins down 182bp qoq from INR appreciation and
strong headcount growth. PAT (ex-Satyam) got support
from lower depreciation and higher FX gains.
BT re-bid poses downside risk to current GBP70-72m
quarterly revenue run-rate; recall BT’s 15-20% rate cut
demands in 2009 vendor renegotiations.
BT business renegotiation risk and subdued near-term
demand outlook for telecom vertical remain our key
concerns. Maintain IN-LINE.
1Q12 results: revenues were in-line… Consol. revenues
(ex-BT contract restructuring fee) were up 4.2% qoq to
US$278.6m (in-line with our estimates) aided by 220bp
cross-currency uplift; volume growth remained muted at 2%
qoq. BT revenues were flat at £70m (+1.6% in US$ terms
on GBP appreciation). Non-BT revenues were up 5.5% on
strong BPO growth (+21% qoq) post completion of transition
in Bharti Africa BPO deal (ex BPO, non-BT grew 3.1%).
…but margin disappointment continues. Normalised
EBITDA margin was down 182bp to 15.4% (SCS est. of
15.9%) mainly from currency hit (1.5% INR appreciation) as
well as 300bp lower utilization post fresher intake. PAT (exSatyam) was however in-line at Rs1.8bn (-12.6%) aided by
higher FX gains as well as reduction in depreciation. Wage
hikes, effective 2Q12, will pose a near-term headwind.
While broader pyramid will be a key medium term lever, the
consequent utilization pull-down is a near term margin
challenge, especially given weak volume growth outlook.
Another round of re-negotiations with BT injects added
uncertainty. BT business at GBP70-72m revenue run-rate
(40% of 1Q12 revenues) faces downside risk post BT’s
kickstart for fresh rate renegotiations with vendors. We
believe near-term volume could be hit if new project
launches get delayed pending RFP closures. Medium-term
margin could come under pressure if BT adopts an
aggressive stance (recall 15-20% rate-card cuts demanded
in '09 negotiations). Also, while re-bid is currently restricted
to core BT business, we believe recent macro concerns
could lead to its extension to other parts.
Maintain IN-LINE. We expect the stock to remain under
pressure given recent steep run-up, negative news flow on
BT renegotiations and subdued telecom vertical outlook.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TechM’s 1Q12 normalised revenue growth of 4.2% qoq
was in-line with our estimates. Non-BT traction continued –
revenues up 5.5% qoq; BT business was flat.
Margins down 182bp qoq from INR appreciation and
strong headcount growth. PAT (ex-Satyam) got support
from lower depreciation and higher FX gains.
BT re-bid poses downside risk to current GBP70-72m
quarterly revenue run-rate; recall BT’s 15-20% rate cut
demands in 2009 vendor renegotiations.
BT business renegotiation risk and subdued near-term
demand outlook for telecom vertical remain our key
concerns. Maintain IN-LINE.
1Q12 results: revenues were in-line… Consol. revenues
(ex-BT contract restructuring fee) were up 4.2% qoq to
US$278.6m (in-line with our estimates) aided by 220bp
cross-currency uplift; volume growth remained muted at 2%
qoq. BT revenues were flat at £70m (+1.6% in US$ terms
on GBP appreciation). Non-BT revenues were up 5.5% on
strong BPO growth (+21% qoq) post completion of transition
in Bharti Africa BPO deal (ex BPO, non-BT grew 3.1%).
…but margin disappointment continues. Normalised
EBITDA margin was down 182bp to 15.4% (SCS est. of
15.9%) mainly from currency hit (1.5% INR appreciation) as
well as 300bp lower utilization post fresher intake. PAT (exSatyam) was however in-line at Rs1.8bn (-12.6%) aided by
higher FX gains as well as reduction in depreciation. Wage
hikes, effective 2Q12, will pose a near-term headwind.
While broader pyramid will be a key medium term lever, the
consequent utilization pull-down is a near term margin
challenge, especially given weak volume growth outlook.
Another round of re-negotiations with BT injects added
uncertainty. BT business at GBP70-72m revenue run-rate
(40% of 1Q12 revenues) faces downside risk post BT’s
kickstart for fresh rate renegotiations with vendors. We
believe near-term volume could be hit if new project
launches get delayed pending RFP closures. Medium-term
margin could come under pressure if BT adopts an
aggressive stance (recall 15-20% rate-card cuts demanded
in '09 negotiations). Also, while re-bid is currently restricted
to core BT business, we believe recent macro concerns
could lead to its extension to other parts.
Maintain IN-LINE. We expect the stock to remain under
pressure given recent steep run-up, negative news flow on
BT renegotiations and subdued telecom vertical outlook.
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