Tech Mahindra - 4QFY2015 Result Update - Angel Broking

Tech Mahindra's 4QFY2015 results have come in much lower than our expectations. Sales came in at US$984mn V/s an expected US$989mn and V/s US$924mn in 3QFY2015, a qoq growth of 6.5%. Revenue contribution from its acquisitions like LCC and Sofgen was at US$100mn, adjusting for which the the revenue de-grew by 4.3% qoq (1.2% dip on constant currency [CC] basis). On the operating front, the EBITDA margin came in at 15.2% V/s 18.4% expected and V/s 20.2% in 3QFY2015, a dip of 499bp qoq. Thus, the Adj. PAT came in at Rs. 472cr V/s Rs. 751cr expected and V/s Rs. 777cr in 3QFY2015, a qoq de-growth of 39.2%. Apart from the lower than expected EBDITA margin, a forex loss of Rs. 154.1cr booked during the quarter also impacted the net profit. Given that the stock price has corrected significantly, we maintain our Buy rating on the stock.

Result highlights: Tech Mahindra's 4QFY2015 results have come in much lower than our expectations. Sales came in at US$984mn V/s an expected US$989mn and V/s US$924mn in 3QFY2015, a qoq growth of 6.5%. Revenue contribution from its acquisitions like LCC and Sofgen was at US$100mn, adjusting for which the the revenue de-grew by 4.3% qoq (1.2% dip on constant currency [CC] basis). On the operating front, the EBITDA margin came in at 15.2% V/s 18.4% expected and V/s 20.2% in 3QFY2015, a dip of 499bp qoq. One of the reasons for the dip in the EBDITA margin is the utilization levels, which came in at 71% V/s 74% in 3QFY2015, and wage hikes. Thus, the Adj. PAT came in at Rs. 472cr V/s Rs. 751cr expected and V/s Rs. 777cr in 3QFY2015, a qoq de-growth of 39.2%. Apart from the lower than expected EBDITA margin, a forex loss of Rs. 154.1cr booked during the quarter also impacted the net profit.

Outlook and valuation: The Management remains confident of reverting back to the original profitability, by FY2017-18. We expect a CAGR of 20.0% and 21.1% in USD and INR revenue respectively over FY2015-17E, driven by acquisitions. The PAT is expected to grow at a CAGR of 21.2% over FY2015-17. We maintain our Buy rating on the stock, given the recent correction in the stock price, and on account of conducive valuations.

Shares of TECH MAHINDRA LTD. was last trading in BSE at Rs.553.7 as compared to the previous close of Rs. 557.25. The total number of shares traded during the day was 165630 in over 3882 trades.

The stock hit an intraday high of Rs. 558.5 and intraday low of 551. The net turnover during the day was Rs. 91795875.

Source : Equity Bulls

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