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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