Tech Mahindra - Disappointing margin show yet again : :Emkay

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Tech Mahindra

Disappointing margin show yet again

HOLD

CMP: Rs616                                        Target Price: Rs650

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n     TechM reported rev of US$ 296 mn (+2.2% QoQ) marginally below est despite a 5.5% QoQ decline in BT business. Non top client/top 2-top 5 client revenues grew by ~7/8% QoQ

n     Margin show continued it’s downward trend with a 340 bps QoQ decline to 15.3% ( note that TechM’s margins have been declining over the past 10 qtrs now)

n     We cut our US$ rev estimates, lower currency resets limit standalone FY12/13E EPS cuts to 2/3% to Rs 47/50. Consolidated FY12/13E EPS raised by 4% each to Rs 63.5/67.1

n     Inexpensive valuations at <8x standalone P/E should limit sharp downsides, however lack upside triggers given challenges at top client. HOLD, TP Rs 650.