8 November 2013
2QFY14 Results Update | Sector:
Technology
Tech Mahindra
BSE SENSEX
20,823
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,187
TECHM IN
231.9
368.7/5.9
1,605/865
6/58/53
CMP: INR1,580
TP: INR1,84
Buy
Financials & Valuation (INR b)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Gr. (%)
2013 2014E 2015E
143
30.6
19.8
93.0
32.1
186
40.8
26.6
124.6
34.0
204
42.6
30.2
141.5
13.6
537.9
30.8
30.1
11.2
3.0
BV/Sh(INR) 321.3 408.0
RoE (%)
32.6 34.7
RoCE (%)
35.3 34.6
P/E (x)
P/BV (X)
17.1
4.9
12.8
3.9
2QFY14 results beat expectations:
TECHM’s 2QFY14 revenue grew 4.7% QoQ (and
5% QoQ CC) to USD758m, above our estimate of USD745m. EBITDA margin
expanded 220bp QoQ to 23.3%, in line with our estimate. PAT after adjusting for
restructuring fees was INR6.85b, marginally ahead of our estimate of INR6.7b.
Healthy deal wins:
TECHM announced 13 significant deal wins during the quarter,
with a total TCV of ~USD500m, much higher than three large wins of USD50m-
75m TCV each announced in the previous quarter. Notably, the wins announced
are new businesses won with new clients.
Comfortable balance sheet:
TECHM continued to repay debt, which has now been
brought down to INR3.35b from INR11.6b two quarters ago. Cash position at
INR32.7b remains healthy.
Tightening in BT continues:
TECHM has discontinued disclosing top client revenue
contribution and only shares revenue contribution from top-5 client onwards.
There has been no change in gradual declining revenue trend from the account.
However, it remains a significant customer from TECHM’s perspective and its
wallet share is inching up in BT.
Revising estimates, target price:
We have raised our USD revenue estimates for
FY14/FY15 by 1.6%/2.8% on the back of multiple positives. We expect TECHM to
grow its USD revenue at a CAGR of 13.6% and EPS at a CAGR of 23.4% over FY13-
15. In 2QFY14, TECHM demonstrated improving prowess in winning deals to hive
off any impact from a weak BT account in particular, and Telecom in general. Our
revised target price of INR1,840 discounts FY15E EPS by 13x (v/s 12x earlier).
Maintain
Buy.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585
Investors are advised to refer through disclosures made at the end of the Research Report.