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A solid quarter. Tech Mahindra reported constant-currency organic revenue growth of 3.8% in 3QFY15, following an outstanding 6.1% growth in 2QFY15. We expect strong growth to continue. TM’s breadth of capabilities in the telecom vertical, strategic initiatives to leverage its vertical expertise to expand into adjacent areas and sharp market segmentation in the enterprise segment will drive strong deal wins and aboveindustry growth on a consistent basis. We incorporate LCC and SOFGEN acquisitions in our estimates and raise FY2015-17E revenue estimates but retain EPS estimates. We maintain our ADD rating with an unchanged target price of `3,000.
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Enterprise segment drives robust 3QFY15 TM reported 2.7% sequential revenue growth to US$924 mn. Constant-currency growth was 3.8% on an organic basis and 4.9% overall. Consolidation of Mahindra Engineering Services (MES) contributed US$10.3 mn to revenues. Revenue growth was led by the enterprise segment that grew 5.1% sequentially to US$454 mn. Furloughs and lower-than-expected revenues from Comviva resulted in muted revenues from the telecom vertical. EBITDA margin increased 20 bps to 20.2%—the increase could have been higher but for (1) higher bad debt provisioning leading to 30 bps impact and (2) higher M&A expenses. We also believe that the network management services profitability was weak. Adjusted profit of `7.8 bn grew 8% qoq and 17% yoy, in line with our estimate. The Board has approved 1:1 bonus and 2:1 stock split. Expect balanced growth between telecom and enterprise verticals in FY2016E As opposed to FY2015E where telecom drove most of the growth, we expect FY2016E revenue growth to be balanced and strong across the telecom and enterprise segments. TM will reap the benefits of large deal wins resulting from the two-pronged strategy to expand its enterprise business – end-to-end offerings in leadership areas like manufacturing and niche offering led entry strategy in areas like BFSI where it is a challenger. TM is building on strong positioning in auto, aerospace and defense verticals by bringing in expertise from the Mahindra group. It has a unique concept of design-to-manufacturing-support offering, which is helping it win several end-to-end deals in this space. The manufacturing vertical grew 14% qoq, partly aided by consolidation of MES acquisition. Incorporate LCC and SOFGEN acquisitions; retain ADD rating We incorporate US$61 mn and US$485 of revenues from LCC and SOFGEN acquisitions for FY2015 and FY2016, respectively. These acquisitions will drag FY2016E EBITDA margin by 120 bps. We retain our organic growth estimates. Our consolidated revenue estimates increase by ~11-12% for FY2016-17E although EPS estimates remain largely unchanged. TM is on track to lead the industry on revenue again in FY2016E. Strong run-up in the stock price may cap nearterm upside even as the structural growth story stays intact. ADD with TP of `3,000, valuing the stock at 16X September 2016E EPS.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
A solid quarter. Tech Mahindra reported constant-currency organic revenue growth of 3.8% in 3QFY15, following an outstanding 6.1% growth in 2QFY15. We expect strong growth to continue. TM’s breadth of capabilities in the telecom vertical, strategic initiatives to leverage its vertical expertise to expand into adjacent areas and sharp market segmentation in the enterprise segment will drive strong deal wins and aboveindustry growth on a consistent basis. We incorporate LCC and SOFGEN acquisitions in our estimates and raise FY2015-17E revenue estimates but retain EPS estimates. We maintain our ADD rating with an unchanged target price of `3,000.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Enterprise segment drives robust 3QFY15 TM reported 2.7% sequential revenue growth to US$924 mn. Constant-currency growth was 3.8% on an organic basis and 4.9% overall. Consolidation of Mahindra Engineering Services (MES) contributed US$10.3 mn to revenues. Revenue growth was led by the enterprise segment that grew 5.1% sequentially to US$454 mn. Furloughs and lower-than-expected revenues from Comviva resulted in muted revenues from the telecom vertical. EBITDA margin increased 20 bps to 20.2%—the increase could have been higher but for (1) higher bad debt provisioning leading to 30 bps impact and (2) higher M&A expenses. We also believe that the network management services profitability was weak. Adjusted profit of `7.8 bn grew 8% qoq and 17% yoy, in line with our estimate. The Board has approved 1:1 bonus and 2:1 stock split. Expect balanced growth between telecom and enterprise verticals in FY2016E As opposed to FY2015E where telecom drove most of the growth, we expect FY2016E revenue growth to be balanced and strong across the telecom and enterprise segments. TM will reap the benefits of large deal wins resulting from the two-pronged strategy to expand its enterprise business – end-to-end offerings in leadership areas like manufacturing and niche offering led entry strategy in areas like BFSI where it is a challenger. TM is building on strong positioning in auto, aerospace and defense verticals by bringing in expertise from the Mahindra group. It has a unique concept of design-to-manufacturing-support offering, which is helping it win several end-to-end deals in this space. The manufacturing vertical grew 14% qoq, partly aided by consolidation of MES acquisition. Incorporate LCC and SOFGEN acquisitions; retain ADD rating We incorporate US$61 mn and US$485 of revenues from LCC and SOFGEN acquisitions for FY2015 and FY2016, respectively. These acquisitions will drag FY2016E EBITDA margin by 120 bps. We retain our organic growth estimates. Our consolidated revenue estimates increase by ~11-12% for FY2016-17E although EPS estimates remain largely unchanged. TM is on track to lead the industry on revenue again in FY2016E. Strong run-up in the stock price may cap nearterm upside even as the structural growth story stays intact. ADD with TP of `3,000, valuing the stock at 16X September 2016E EPS.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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