Tech Mahindra - Q1FY2014 Result Review - Angel Broking

Tech Mahindra announced its 1QFY2014 results which came in above our expectations on all broader fronts. The dollar revenues (including Mahindra Satyam) grew by 3.8% qoq to US$724mn (2.8% organic, excluding Complex IT). In INR terms, revenues came in at Rs. 4,103cr, up 6.8% qoq. The EBITDA margin of came in at 21.1%, up ~110bp qoq and ahead of our expectations of 20.9%. Margins were aided by 130bp qoq of favorable currency impact, partially offset by 80bp of negative impact from higher expenses (especially visa related). Management indicated that the company should be able to sustain current margin levels after absorbing the impact of wage hikes. Adjusted net profit came in at Rs. 686cr, up 36% qoq helped by higher non-operating income from forex gains. Tech Mahindra also proposed to increase the FII limit from current 35% to 45% of paid-in capital, which may make it eligible for inclusion in MSCI Global Standard Index, following Satyam's removal in July.

During the quarter, Tech Mahindra won three large deals in the ERP space, with TCV of ~US$50-60mn each. Management expects non-BT telecom business to grow in line with company average and above Telecom sector average, while BT revenues are expected to remain modest, clocking about £52mn per quarter in the near term. Management indicated that the company is witnessing pick up in discretionary spending and a strong deal pipeline in IMS, where Tech Mahindra is actively gaining market share through renewal deal wins. We continue to remain positive on Tech Mahindra; the target price is currently under review.

Source : Equity Bulls

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