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Tech Mahindra Ltd Research Report - 21st Jan 2016

IT | Published on Nov 24th 2015

IT

Tech Mahindra posted better than expected results for 2QFY2016. The company posted a 2.2% qoq growth in revenue to US$1,011mn V/s an expected US$1,004mn and V/s US$989mn in 1QFY2016. On the EBIDTA front, the EBITDA margin came in at 16.6% V/s 15.9% expected and V/s 14.9% in 1QFY2016. The company posted an EBIT margin of 13.7% V/s 13.1% expected and V/s 12.1% in 1QFY2016. Thus, the Net Profit came in at Rs786cr V/s Rs725cr expected and V/s Rs676cr in 1QFY2016, a qoq growth of 16.2%. We currently have a Buy rating on the stock with a price target of Rs646. Result highlights: Tech Mahindra posted a 2.2% qoq growth in revenue to US$1,011mn V/s an expected US$1,004mn and V/s US$989mn in 1QFY2016. In rupee terms, the company posted a 5.1% qoq revenue growth to Rs6,616cr V/s Rs6,577cr expected and V/s Rs6,294cr in 1QFY2016. The growth was primarily driven by USA, which contributed ~48.9% of sales in 2QFY2016 V/s ~47.7% in 1QFY2016. The EBIDTA margin came in at 16.6% V/s 15.9% expected and V/s 14.9% in 1QFY2016. The margin expansion was driven by improved capacity utilization, which moved up from 74% in 1QFY2016 to 77% in 2QFY2016. Excluding trainees, utilization inched up to 79% V/s 75% in 1QFY2016. The attrition rate during the quarter was 20% V/s 19% in 1QFY2016. Thus, the Net Profit came in at Rs786cr V/s Rs725cr expected and V/s Rs676cr in 1QFY2016, a qoq growth of 16.2%. During the quarter, the company added 18 clients, with 1 client added in the US$50mn+ bracket and 2 added in the US$10mn+bracket. Outlook and valuation: The Management remains confident of reverting back to the original profitability by FY2017-18. We expect a CAGR of 13.0% and 8.0% in USD and INR revenue respectively over FY2015-17E, driven by acquisitions. The PAT is expected to grow at a CAGR of 8.0% over FY2015-17. We maintain our Buy on the stock.

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CMP 534
Target Price 646
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)44,289.56
MCAP NSE (Rs in Cr)44,328.48
P/E (x)14.38
EPS (Rs.)31.65
BV (Rs.)158.36
Div Yield (%)2.62
FV (Rs.)5.00
P/BV (x)2.96
EV/Sales (x)1.63
EV/EBITDA (x)10.00

Shareholding Pattern (%)

Foreign40.0
Promoter36.0
Public & Others12.0
Institution11.0
Corporate1.0
Grand Total100.0

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