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B T p r i c i n g h u r t s …
Tech Mahindra reported Q2FY12 revenues of | 1,333 crore vs. our | 1,339
crore estimate led by growth in non-BT revenues. EBITDA margins at
15.7% were even below our modest 16.2% estimate, a decline of 340 bps
QoQ primarily due to wage hikes given. Further, the company had markto-market (MTM) translation losses of | 52.2 crore on its foreign currency
debt of | 722 crore (50% of total debt). Volume growth continues to be
tepid as BT volumes declined 5% QoQ while non-BT grew ~7% QoQ.
Noticeably, BT account pricing is likely under pressure as though Tech
Mahindra gained market share in some of the re-tendered contracts,
revenues declined 5.5% QoQ with BT contribution declining 3 percentage
points (pp) to 37% of Q2 revenues. Management commentary suggests
softer Q3 and Q4 as BT revenues/EBIT could be under pressure this fiscal.
The impending merger with Mahindra Satyam remains the only trigger
for the stock. We maintain our HOLD rating on the stock.
ƒ Operating metric highlights
BT revenues declined 5.5% QoQ to $109.6 million while non-BT
revenues grew 7.3% sequentially. Top 5 excluding top 1 client likely
grew 9.3% QoQ while top 6-10 clients have grown 13.6% QoQ.
Geographically, the US contribution increased 1 pp to 33% vs. 32%
in Q1 while the rest of the world was 20% (17% in Q1). Utilisation
levels increased to 72% from 71% and the total net additions stood
at 807. However, the number of software professionals declined by
1255 in Q2FY12. Active client roster was flat at 128. BPO revenues
increased 1.6% QoQ to | 124 crore vs. | 122.1 crore in Q1FY12.
Consolidated EBITDA and EBIT margins declined 340 bps and 462
bps QoQ, respectively, due to wage hikes given this quarter.
V a l u a t i o n
We continue to value Tech Mahindra at 5.3x our FY13E EPS estimate of |
65.9 plus value of holding in Mahindra Satyam. The rationale for lower
P/E multiple includes feeble revenue growth and uncertainty surrounding
BT revenue growth and pricing. We continue to apply a 15% holding
discount for Mahindra Satyam considering the company has settled a
majority of its lawsuits and that restructuring has shown visible results
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
B T p r i c i n g h u r t s …
Tech Mahindra reported Q2FY12 revenues of | 1,333 crore vs. our | 1,339
crore estimate led by growth in non-BT revenues. EBITDA margins at
15.7% were even below our modest 16.2% estimate, a decline of 340 bps
QoQ primarily due to wage hikes given. Further, the company had markto-market (MTM) translation losses of | 52.2 crore on its foreign currency
debt of | 722 crore (50% of total debt). Volume growth continues to be
tepid as BT volumes declined 5% QoQ while non-BT grew ~7% QoQ.
Noticeably, BT account pricing is likely under pressure as though Tech
Mahindra gained market share in some of the re-tendered contracts,
revenues declined 5.5% QoQ with BT contribution declining 3 percentage
points (pp) to 37% of Q2 revenues. Management commentary suggests
softer Q3 and Q4 as BT revenues/EBIT could be under pressure this fiscal.
The impending merger with Mahindra Satyam remains the only trigger
for the stock. We maintain our HOLD rating on the stock.
ƒ Operating metric highlights
BT revenues declined 5.5% QoQ to $109.6 million while non-BT
revenues grew 7.3% sequentially. Top 5 excluding top 1 client likely
grew 9.3% QoQ while top 6-10 clients have grown 13.6% QoQ.
Geographically, the US contribution increased 1 pp to 33% vs. 32%
in Q1 while the rest of the world was 20% (17% in Q1). Utilisation
levels increased to 72% from 71% and the total net additions stood
at 807. However, the number of software professionals declined by
1255 in Q2FY12. Active client roster was flat at 128. BPO revenues
increased 1.6% QoQ to | 124 crore vs. | 122.1 crore in Q1FY12.
Consolidated EBITDA and EBIT margins declined 340 bps and 462
bps QoQ, respectively, due to wage hikes given this quarter.
V a l u a t i o n
We continue to value Tech Mahindra at 5.3x our FY13E EPS estimate of |
65.9 plus value of holding in Mahindra Satyam. The rationale for lower
P/E multiple includes feeble revenue growth and uncertainty surrounding
BT revenue growth and pricing. We continue to apply a 15% holding
discount for Mahindra Satyam considering the company has settled a
majority of its lawsuits and that restructuring has shown visible results
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