Tech Mahindra - Q4FY13 Result Update - Sushil Finance

Strong results led by contribution of Comviva & decent growth in Non-BT accounts

The quarterly performance of Tech Mahindra was slightly better than the expectations. During Q4FY13, its USD Revenues grew 7.2% QoQ to USD 353.2 mn, led by complete consolidation of Revenue (USD 64mn v/s 43mn) from Comviva & Hutchison Global Services (HGS) and decent 5.3% QoQ growth in Non-BT Revenue (excluding HSG & Comviva). However, the BT Revenue declined 7.6% QoQ, due to its continued internal rationalization program. During the quarter, its INR Revenues grew by 6.5% QoQ to Rs. 19,072 mn.

During FY13, its USD Revenues grew 9.2% to USD 1,263 mn, and INR Revenues grew by 25.2% to Rs. 68,731 mn. Going forward, we expect the company to deliver decent performance on account of full year consolidation from Comviva & HGS along with the decent growth in Non-BT accounts.

EBITDA Margins down 110 bps QoQ on lower exchange rates

Its EBITDA for Q4FY13 grew just 1% QoQ to Rs. 3,801 mn, while the EBITDA margins declined 110 bps QoQ to 19.9%, mainly on account of cross currency impact along with appreciation of INR against USD. With decrease in other income (Rs. 138 mn v/s 180 mn), and due to impact of exchange loss (Rs.373 mn v/s gain of Rs.121 mn), its PBT declined 18.9% QoQ to Rs. 2,672.8 mn and its APAT decreased 24% QoQ to Rs. 1,836 mn. However, its RPAT including share of Mahindra Satyam grew 36.8% QoQ to Rs. 3,772 mn.

For FY13, its EBITDA grew 54.9% to Rs. 14,242 mn, while the EBITDA margins expanded 400 bps to 20.7%, mainly due to exchange rate benefit and productivity improvement. Though margins are expected to remain stable in FY14, we expect ~70 bps cut in margins in FY14 due to full impact of HGS & Comviva consolidation and to stabilize thereafter at 20% level.

Deal wins continued in Q4; Deal Pipeline looks decent

During Q4FY13, the company closed few large deals in US & Middle East regions from leading telecommunications service providers. Despite the customers taking longer time in decision making, the deal pipeline looks decent as the company is chasing 4-5 large deals which are likely to be finalized in upcoming quarters.

Acquisition of HGS and Comviva provides decent growth visibility

Tech Mahindra acquired 100% stake in Hutchison Global Services (HGS) in Q2FY13 and currently holds 55.7% stake in Comviva Tech acquired in Q3FY13. The acquisition of HGS will enhance its expertise in the customer management space and enable Tech Mahindra to leverage the acquired capabilities for expanding its existing services to other parts of the Hutchison group. With over 11,500 employees, HGS provides customer lifecycle operations to clients in UK, Ireland and Australia. As part of the deal, the clients of HGS have committed to procure services worth USD 845 mn over next 5 years. Comviva is the global leader in providing mobile VAS and financial solutions. Comviva's solutions are deployed by over 130 service providers and banks in over 90 countries and power services to more than a billion mobile subscribers globally. The management expects to deliver annual Revenue of ~USD 160 mn from HGS and ~80 mn from Comviva.

OUTLOOK & VALUATION

With ~25% CAGR in last six year in Non-BT accounts, compensating for decline in BT account, Tech Mahindra expects its Non-BT accounts to deliver decent growth, while BT's revenue is expected to muted in short-term due to its internal rationalization program and stabilize going forward. Considering its FY13 performance and its business outlook, we have slightly increased our FY14E Revenue estimates, while have largely maintained our FY14E APAT estimates. We have also introduced our FY15E estimates. We now expect Tech Mahindra to deliver 14.2% CAGR in Revenue and 13% CAGR in APAT during FY13-15E. At CMP of Rs.942, the stock is trading at 8.4x & 7.3x its FY14E & FY15E Earnings of Rs.112.8 & Rs.128.2 respectively. We have valued the stock at 10x its FY15E EPS and change our Rating to 'BUY' with an increased target price of Rs.1282.

Source : Equity Bulls

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