MOSL: TECH MAHINDRA (Buy)-Profitability resurrection on track
​Tech Mahindra: Profitability resurrection on track
(TECHM IN, Mkt Cap USD7.4b, CMP INR489, TP INR560, 15% Upside, Buy)
- Enterprise led growth: TECHM's 2QFY18 revenue of USD1,179m grew 3.6% QoQ. In CC terms, growth at 2.3% QoQ was a tad ahead of our estimate of +1.7% and implied cross-currency tailwinds of 130bp. The driver this quarter was Enterprise, which saw strong growth of 6.3% QoQ. Even excluding the integration of HCI, the segment grew 3.9% QoQ. While Telecom was flat in 2Q, it is expected to pick-up in 2HFY18 on account of seasonal support and stability in LCC.
- Steep margin improvement despite wage hikes: This was the second quarter that TECHM saw a 4% reduction in Software Professionals headcount (3,409 employees), cost benefits from which aided the 80bp EBITDA margin beat to 14.5%, also supported by the absence of visa expenses and an increase in utilization (+400bp QoQ). PAT at INR8.4b grew 4.7% QoQ, against our expectation of -2.7%, primarily led by the beat on profitability and higher other income aided by favorable hedge positions.
- Multiple levers yet in hand: The margin trajectory has been looking upward for TECHM since the past two quarters - a cumulative improvement of 250bp from 12% in 4QFY17. With a seasonally strong 2H coming up, the path is not likely to alter in the near term. Even beyond that period, although utilization has little juice to squeeze out from current levels, visibility of profitability recovery stems out of automation, offshoring, yield management, and improved margins in subsidiaries.
Tech Mahindra Limited is engaged in the business of computer programming, consultancy and related services. The Company's segments include Information Technology (IT) Services and Business Processing Outsourcing (BPO). The Company operates in various sectors, including telecom business and enterprise solutions business. The telecom business provides consulting-led integrated portfolio services to customers, which are telecom equipment manufacturers, telecom service providers and IT infrastructure services, and BPO, as well as enterprise services (banking, financial services and insurance (BFSI), retail and logistics, and manufacturing, among others) of IT and IT-enabled services delivered through a network of various locations around the world. The enterprise solutions business provides IT services, including IT enabled services, application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.