CMC All round performance – beat expectations:: Prabhudas Lilladher,

CMC reported Q3FY13 results exceeding our/consensus expectation. The revenue
growth has been consistently supported by SI (CQGR of ~9% over the last three
quarters), while ITES remained relatively muted in Q3FY13. The margin profile
continues to be stable as reiterated by the management. We reiterate our
‘Accumulate’ rating, with a revised target price of Rs1,350 (from Rs1,270) as we
revise our estimates up for better growth and margin expectation

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! Revenue beats expectations, margins in stable zone: CMC reported revenue
growth of 7.5% QoQ to Rs4,926.8m (PLe: Rs4,720m, Cons: Rs4,812m). However,
excluding SEZ, top-line grew by 8% QoQ to Rs4,824.9m. EBITDA margins
improved by 19bps at 16.8% (PLe: 17%, Cons: 16.6%), on account of better
volume growth accompanied with operational efficiency and productivity. PAT
improved by 23.6% QoQ to Rs610.6m (PLe: Rs562m, Cons: Rs570m), on account
of lower tax (Q3FY13: 23.7%, Q2FY13: 31.5%) & higher other income.
! Offshore leverage to be pushed to FY14: The management is confident of
maintaining EBITDA margin in 15-17% range despite rupee appreciation. We
expect offshore leverage to kick in from Q1FY14 which will aid margin expansion
(Q3FY13 Offshore share: 23% of International business).
! Conference call highlights: 1) TCS’ contribution at ~58% (Q2FY13: 56%) 2) CMC
Americas grew 14% QoQ & 36% YoY in USD terms 3) CMC International business
(~68% of revenue) grew 11% QoQ & 38% YoY 4) 26 new clients added in Q3FY13
(Q2FY13: 15) 5) Forex gain in Q3FY13 at Rs34m 6) DSO – 81 days (Q2FY13: 83) 7)
Cash & Cash equivalents: Rs2,180m (Investments: Rs1,130m) 8) Employee
count: 11,224 (Permanent: 4,743) 9) 10) Capex: Rs220m (9MFY13: Rs670m) 11)
Experiencing good traction in SI, Embedded & real time systems, focus on
emerging trends i.e. big data, analytics, cloud etc.
! Valuation & Recommendation: We expect the revenue momentum to stay in
the mid-twenties, with a stable margin profile. We reiterate ‘Accumulate’, with
a target price of Rs1,350, 14x FY14E earnings estimates.