Tech Mahindra - Result Update 1QFY2014 - Angel Broking

For 1QFY2014, Tech Mahindra reported an inline operational performance while net profit came in better than expected due to higher other income. On an organic basis, revenues grew 2.5% qoq despite a sharp decline of ~4% in revenues from British Telecom (BT), which is reasonably good in our view. During the quarter, Tech Mahindra won three large deals in the ERP space, with TCV of ~US$50-60mn each, and continues to chase four large deals in the pipeline. The ramp-up on the recently won deals will lend visibility to revenue growth and is expected to offset the decline in revenues from BT. We maintain our Accumulate rating on the stock.

Result highlights: For 1QFY2014, Tech Mahindra reported a revenue of US$724mn. During the quarter, Tech Mahindra won three large deals in the ERP space, with TCV of ~US$50-60mn each. The EBITDA margin came in at 21.1%, up ~60bp qoq and ahead of our expectations of 20.9%. Margins were aided by a favorable currency impact (130bp qoq), which although was partially offset by an 80bp negative impact from higher expenses (especially visa related). The consolidated PAT came in at Rs. 686cr, up 36% qoq, aided by other income of Rs. 207cr as against Rs. 38cr in 4QFY2013.

Outlook and valuation: The Management indicated that the company remains confident of growth from the non-BT business with it continuing to see a robust deal pipeline across geographies. The revamped sales team post consolidation of Satyam and increased focus on sales efforts have started yielding results for the company. It signed three large deals in 1QFY2014, each having TCV of ~US$50- 75mn and is pursing another four. Tech Mahindra's top five clients (excluding BT) also grew faster than the company (~8% sequential growth), indicating benefits from client mining. Tech Mahindra remains confident of improving revenue growth, citing healthy deal pipeline along with pick up in discretionary spending primarily in the US. Further given the significant currency tailwinds akin to peers, Tech Mahindra remains confident of maintaining margins at current levels. We expect a CAGR of 10.8% and 14.9% in USD and INR revenue respectively over FY2013-15E. We value Tech Mahindra at 13.5x FY2015E EPS of Rs. 109 and maintain our Accumulate rating on the stock with a target price of Rs. 1,470.

Source : Equity Bulls

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