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Research
CMC - Strong operating performance - Prabhudas Lilladher
Posted On : 2012-07-16 10:23:17( TIMEZONE : IST )
CMC reported Q1FY13 results touch ahead of our/consensus expectation at top-line. However, the strong performance at the bottom-line was led by a margin surprise, higher other income and lower tax rate. The strong growth in SI is also aided by the currency; moreover, the weakness in ITES remains a matter of concern. The margin profile continues to be volatile due to continued investment in the business. We reiterate our 'Accumulate' rating, with a revised target price of Rs1,050 (from Rs1,140) as we cut our multiple due to growing uncertainty around demand.
- Revenue in-line, but margin ahead: CMC reported revenue growth of 10.3% QoQ to Rs4.5bn (PLe: Rs4.5bn, Cons: Rs4.2bn). However, excluding SEZ, top-line grew by 9.1% QoQ to Rs4.4bn. EBITDA margins expanded by 198bps QoQ to 16.6% (PLe: 15.6%, Cons: 14.3%), due to currency depreciation & cost optimization. PAT grew 36% QoQ to Rs584m (PLe: Rs463m, Cons: Rs428m), due to other income of Rs57.1m (PLe: Rs25.4m) and tax-rate of 22.6% (PLe: 29%).
- Current margin levels to be sustained: The management is confident of maintaining EBITDA margin in 15-17% range. Moreover, we expect offshore leverage to give further upside to margin in H2FY13.
- Conference call highlights: 1) SI & Embedded systems continue to be the growth drivers for the company; however, cloud, mobility, big data analytics likely to address new opportunities & enhance existing customer base 2) Capex for FY13 at ~Rs2.28bn 3) Rental Income in FY13 is expected to be ~Rs40-45crores 4) 20 clients added in Q1FY13 (14 in Q4FY12), deals in the range of ~Rs5-20 crores across various verticals 5) Effective tax rate to be below 25% for FY13 6) DSO - 86 days 7) International business expected to be at ~60-65% of overall revenue, going ahead 8) Employee count: 10714 (Permanent: 4,634).
Valuation & Recommendation: We expect the revenue momentum to stay in the mid-twenties, with stable margin profile. We reiterate 'Accumulate', with a target price of Rs1,050, 14x FY13E earnings estimates.
