MOSL: Morning India (06/February/19): 1. Tech Mahindra (Building momentum in Communications); 2. GAIL India; 3. Marico (In-line); 4. Hindalco-Novellis; 5. HPCL; 6. Bulls & Bears (India Valuations Handbook); 7.
MOrning India (06/February/19): 1. Tech Mahindra (Building momentum in Communications); 2. GAIL India (Trading and petrochem suffer); 3. Marico (In-line); 4. Hindalco-Novellis; 5. HPCL; 6. Bulls & Bears (India Valuations Handbook); 7. Ecoscope; 8. Real Estate (ES)
Today’s top research idea
Tech Mahindra: Building momentum in Communications; Margin expansion to take a breather
- TECHM's 3QFY19 CC revenue grew 4.3% QoQ (+6.4% YoY; our estimate: +2.6% QoQ, +4.7% YoY) Gross margin shrank 100bp QoQ to 33% amid large deals' ramp up. However, EBITDA margin expanded 50bp QoQ to 19.3% (above our estimate of 18.9%), driven by lower SGA (-150bp QoQ to 13.8%; our estimate: 15.3%).
- TECHM's impressive margin expansion will likely take a pause, and while growth in Communications is a positive, impetus from 5G is still a few quarters away, at least. We believe that re-rating for TECHM will be a function of: [1] visibility for sustained revival in Telecom (lent by 5G) [2] balance of growth between software services and BPS (currently skewed towards BPS).
- We have a Buy rating on the stock with a price target of INR860, Upside in the near term may be capped, pending the above drivers.
Piping hot news
Govt to make additional borrowing of Rs 36,000 crore in FY19
- The government has decided to raise additional Rs 36,000 crore through dated securities to fund its expenses during the current financial year. As per the calender issued previously, the last tranche for borrowing through government bonds was to complete in the week ending March 8, 2019. However, the government has decided to borrow additional Rs 36,000 crore through two tranches of Rs 18,000 crore each during March 11-15 and March 18-22.
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