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Research
Tech Mahindra - Stellar performance - Edelweiss
Posted On : 2012-11-08 20:55:22( TIMEZONE : IST )
Tech Mahindra (TECHM) reported a stellar performance for Q2FY13 as revenue of USD299mn (QoQ growth of 6.4%) was ahead of our estimates. Even on an organic basis, growth of 1.6% was ahead of our estimate of 0.6%. EBITDA margin at 20.7% QoQ dipped by just 70bps despite wage hike surpassing our estimate of 19.3%. Though the decline in BT continued, non-BT (excl. Hutchison) reported a robust growth of 4%. We are revising our revenue growth for the merged entity to 11%/14% from 7%/9% for FY13/FY14 respectively to factor in revenues from acquired businesses (Hutchison and Comviva) and higher growth from the organic non- BT segment. We maintain 'BUY' with a revised target price of INR1,100, implying 12x our FY14E EPS estimate (for the merged entity) of INR91.7.
Robust revenue, profitability performance
TECHM's Q2FY13 revenue of USD299mn with a QoQ growth of 6.4% (incl. Hutchison)surpassed our and Street estimates of USD293mn. On an organic basis, revenue growth of 1.6% was driven by non-BT (organic) which grew 4% QoQ. EBITDA margin dipped 70bps QoQ to 20.7% (ahead of our and Street estimate) despite wage hikes effected during the quarter. The only blip during the quarter was the 2.5% sequential decline in BT revenue. It also won two new clients in Europe during the quarter.
Non-BT, consolidation of acquired businesses to foster growth
We believe the increased traction in non-BT (organic) segment and consolidation of Hutchison Global Services (USD170mn) and Comviva (USD70mn for FY11) will not only offset the decline in BT but also drive growth for FY13/FY14. Hence we are revising our revenue growth assumption for the merged entity to 11%/14% from earlier 7%/9% for FY13/14 respectively. Also, we are revising downwards our BT growth from earlier decline of 2% to decline of 8% for FY13.
Outlook and valuations: Gathering pace; maintain 'BUY'
Post our initiating coverage report on TECHM (Tech Mahindra - The big league beckons, dated August 30, 2012), the stock has given 21% returns. However, a strong Q2FY13 by both Mahindra Satyam and TECHM, both on revenue and profitability front besides an improved visibility on non-BT segment keep us bullish on the future growth prospects. Hence we maintain BUY and value the company at 12x, FY14E earnings (merged entity) of INR91.7 with a target price of INR1,100.
