Tech Mahindra - Delivering Beyond Expectations; Upbeat on Demand ::Edelweiss

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Tech Mahindra’s (TECHM) Q3FY15 revenue of USD924mn grew 2.7% QoQ (4.9% in constant currency), surpassing Street’s 2.3% estimate. Growth was broad based with telecom growing at 2.0%, while enterprise segment posted robust 5.5% growth. The demand commentary resonated with that of peers – strong recovery in US, higher outsourcing from Europe and increased adoption of digital technologies. We believe these trends coupled with consolidation in telecom vertical augurs well for TECHM, given its exposure to these segments and database architecture strengths which will enable it to get higher share in the digital space. Riding this, we maintain our FY16E organic USD revenue growth of 15% and have 14% estimate for FY17. Our target price is INR2,920. But, with the stock having run up 23% in the past three months, it provides marginal upside from current levels. However, we like the company from a longer term perspective owing to its robust execution and sustained investments in right technologies, which will fructify over the longer term.

All round performance; positive on demand

TECHM’s trend of beating estimates continued in Q3FY15 as well as it clocked revenue growth of 2.7% versus Street’s estimate of 2.3%. EBITDA margin expanded 20bps QoQ to 20.2%. Growth was broad based across geographies and verticals. USA and Europe grew 2.1% and 3.4%, respectively. Telecom grew 2.0%, while enterprise segment grew 5.5%, led by manufacturing, BFSI and retail. Management remained upbeat on demand due to recovery in the US and uncertainties in Europe providing opportunities for growth.

Well equipped to capture higher growth

We believe the company with its database architecture strength, investments in digital technologies and increasing acceptability in the enterprise segments is well equipped to benefit from the recovery in US and higher outsourcing trends from Europe.

LINK
https://www.edelweiss.in/research/Tech-Mahindra--Delivering-Beyond-Expectations;-Upbeat-on-Demand;-Result-Update-Q3FY15/28191.html