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MOSL: Morning India (28/Mar/17)-1. Tech Mahindra-2. Divi’s Lab; 3. JK Lakshami Cement; 4. Metals Weekly

​MOrning India (28/Mar/17): 1. Tech Mahindra; 2. Divi’s Lab; 3. JK Lakshami Cement; 4. Metals Weekly

Today’s top research idea

Tech Mahindra: Some more cropping in LCC

We interacted with management of Tech Mahindra (TECHM). Key highlights:

• The recovery in Telecom (47% of revenue) is expected to be impacted by: [1] further pruning of business in LCC and [2] issues in a large customer that TECHM had signed for managed services in 2013. This is expected to result in low-single-digit growth in FY18.
  
• Traction in Enterprise, on the other hand, continues to be on track, and the company should deliver industry-leading performance in this area.
  
• Margins are expected to be flat despite trimming of the non-profitable business in LCC, and absence of one-time restructuring expenses, largely led by the impact of deferred wage hikes (from 4QFY17 to 1QFY18 and beyond).
  
• Our earnings estimates have been revised downward following the commentary, led largely by a moderation of margin estimates. This has also been impacted by a change in our INR/USD assumption for FY18/19. While fundamentals have been improving, LCC continues to drag overall performance. We reduce our estimates to factor in incremental developments; maintain Buy with a revised TP of INR560 (14x FY19 earnings)