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W e a k q u a r t e r b u t l i k e l y t r o u g h r e a c h e d …
Tech Mahindra (TechM) reported Q4FY12 revenues of | 1,419 crore
marginally ahead of our | 1,404 crore estimate. Though BT revenues
grew 3.1% QoQ, sequential revenue decline was led by termination of
contracts with two Indian telcos. US$ revenues declined 2.3% QoQ.
Gross margins improved 263 bps QoQ to 34.4% vs. 31.8% in Q3FY12 led
by a reduction in headcount. EBITDA margins improved 64 bps QoQ led
by gross margins improvements and were above our 11.8% estimate.
The management commentary suggests that demand from Europe is
challenging while the US is better. TechM continues to chase six to seven
large cost optimisation deals with ~$20-150 million TCV. Noticeably, the
management highlighted its intention of improving the margin profile of
the BT contract while maintaining its market share. We acknowledge that
core TechM operations continue to be feeble but our belief that it could
be a key beneficiary of the revival in Mahindra Satyam stays and
continues to influence our BUY rating.
Operating metric highlights
Sequentially, BT revenues grew 3.1% to $104.2 million while non-BT
revenues declined 5.3%. Top 5 excluding top 1 client grew 3.6% QoQ
while top 6-10 clients declined 12.2% QoQ. Geographically, the US
contribution increased 1 pp to 34% while the rest of the world decreased
by 2 pp to 20% (22% in Q3). Utilisation increased to 74% from 73% in
Q3FY12 while the total headcount declined by 1983. S/w professionals
declined by 385 (1447 in Q3FY12). Active clients were flat at 130. BPO
revenues declined 11% QoQ to | 123 crore from | 139 crore in Q3FY12.
V a l u a t i o n
We expect FY13E rupee revenue/EPS to grow 10%/-1%, respectively. We
have also introduced FY14E and expect revenue/EPS to grow 7%/8%,
respectively. This translates to a revenue/EPS CAGR of 10%/22% during
FY11-14E. Note that core TechM earnings could likely decline 2% during
this period while Satyam contribution rises. We have changed our
valuation methodology and now value TechM based on CY13E EPS
estimate. We have valued TechM at 9.1x our CY13E EPS estimate of
| 87.5 and maintained our BUY rating with a target price of | 800.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
W e a k q u a r t e r b u t l i k e l y t r o u g h r e a c h e d …
Tech Mahindra (TechM) reported Q4FY12 revenues of | 1,419 crore
marginally ahead of our | 1,404 crore estimate. Though BT revenues
grew 3.1% QoQ, sequential revenue decline was led by termination of
contracts with two Indian telcos. US$ revenues declined 2.3% QoQ.
Gross margins improved 263 bps QoQ to 34.4% vs. 31.8% in Q3FY12 led
by a reduction in headcount. EBITDA margins improved 64 bps QoQ led
by gross margins improvements and were above our 11.8% estimate.
The management commentary suggests that demand from Europe is
challenging while the US is better. TechM continues to chase six to seven
large cost optimisation deals with ~$20-150 million TCV. Noticeably, the
management highlighted its intention of improving the margin profile of
the BT contract while maintaining its market share. We acknowledge that
core TechM operations continue to be feeble but our belief that it could
be a key beneficiary of the revival in Mahindra Satyam stays and
continues to influence our BUY rating.
Operating metric highlights
Sequentially, BT revenues grew 3.1% to $104.2 million while non-BT
revenues declined 5.3%. Top 5 excluding top 1 client grew 3.6% QoQ
while top 6-10 clients declined 12.2% QoQ. Geographically, the US
contribution increased 1 pp to 34% while the rest of the world decreased
by 2 pp to 20% (22% in Q3). Utilisation increased to 74% from 73% in
Q3FY12 while the total headcount declined by 1983. S/w professionals
declined by 385 (1447 in Q3FY12). Active clients were flat at 130. BPO
revenues declined 11% QoQ to | 123 crore from | 139 crore in Q3FY12.
V a l u a t i o n
We expect FY13E rupee revenue/EPS to grow 10%/-1%, respectively. We
have also introduced FY14E and expect revenue/EPS to grow 7%/8%,
respectively. This translates to a revenue/EPS CAGR of 10%/22% during
FY11-14E. Note that core TechM earnings could likely decline 2% during
this period while Satyam contribution rises. We have changed our
valuation methodology and now value TechM based on CY13E EPS
estimate. We have valued TechM at 9.1x our CY13E EPS estimate of
| 87.5 and maintained our BUY rating with a target price of | 800.
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