Tech Mahindra - Margin gap relative to tier-1 narrows... - ICICIDirect

Tech Mahindra (TechM) reported Q3FY13 earnings, which were generally ahead of our estimates. Q3 revenues increased 10% sequentially to $329 million vs. $299.2 million in Q2 and were ahead of our $317.5 million estimate. HGS and Comviva contributed ~$37 million and ~$6 million, respectively. HGS has been completely integrated in Q3 (vs. one month in Q2) while 19 days worth of Comviva revenues have been included in Q3.

BT revenues were weak (declined 3.4% QoQ) while organic non-BT revenues grew 2% QoQ. EBITDA margins improved 31 bps QoQ, higher than our 121 bps decline estimate led by employee pyramid rationalisation and utilisation improvements (76% vs. 74% in Q2) offsetting integration and transition costs.

TechM has won deals with cumulative TCV in excess of $100 million and could help sustain revenue growth momentum. As a reminder, the AP High Court hearing is scheduled in the coming weeks and a positive ruling could conclude the merger.

We are modestly adjusting our FY13E estimates to account for Q3 beat but continue to maintain our FY14E, FY15E estimates and our BUY rating.

Source : Equity Bulls

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