MOSL: TECH MAHINDRA (Buy)-Significant 1Q beat drives 9.5% FY18 earnings upgrade
​Tech Mahindra: Significant 1Q beat drives 9.5% FY18 earnings upgrade
(TECHM IN, Mkt Cap USD5.9b, CMP INR385, TP INR490, 27% Upside, Buy)
- Weak but not to the extent thought: TECHM's 1QFY18 CC revenue declined ~2.1% QoQ, but was ahead of our estimate of a 3.4% decline, led by stabilization of LCC revenues and above-estimate BFSI performance. Including revenues from HCI (two months), CC revenue declined 0.6% v/s our estimate of -2.2%. EBITDA margin expanded 70bp QoQ to 12.7%, only slightly ahead of our estimate of 12.4%, helped by improvement in LCC profitability. Significant forex gains (INR2.7b v/s estimate of INR1.8b) drove PAT beat (INR8b v/s estimate of INR6.5b).
- Profitability recovery visible: TECHM saw a 4.1% QoQ reduction in Software Professionals headcount (3,407 employees), cost impact from which only accrued toward the end of the quarter. Benefits from the same will fully reflect in 2Q EBITDA margins, more than offsetting 30-40bp impact from wage hikes during the period. Utilization at 77% including trainees was flat for the third quarter and down 100bp YoY, and remains a few points below management's target. These should drive margin improvement QoQ for the remainder of the year.
- Communications outlook optimistic, but with gestation: TECHM defended its growth in Communications v/s peers, highlighting that it has not lost any business to competitors. Also, stabilization of operations in LCC is largely behind, and the segment is already adding to growth in some geographies. Digital deals are also kicking in and growing in sizes too. Digital is also impacting Enterprise, changing the complexion of pipeline, driving the need for significant organization-wide up-skill.
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.