MOSL: TECH MAHINDRA (Buy)-Building momentum in Communications-Margin expansion to take a breather
Tech Mahindra: Building momentum in Communications; Margin expansion to take a breather
(TECHM IN, Mkt Cap USD10.3b, CMP INR750, TP INR860, 15% Upside, Buy)
- Revenue above estimate; PAT beat led by lower forex losses
- TECHM's revenue grew 4.2% YoY (our estimate: +2.7%) to USD1,261m, EBITDA increased 36% YoY (our estimate: +34%) to INR17.2b and PAT grew 28% YoY (our estimate of flat growth) to INR12.0b in 3QFY19.
- CC revenue grew 4.3% QoQ (+6.4% YoY; our estimate: +2.6% QoQ, +4.7% YoY) in the quarter.
- Gross margin shrank 100bp QoQ to 33%. However, EBITDA margin expanded 50bp QoQ to 19.3% (above our estimate of 18.9% by 40bp), driven by lower SGA (-150bp QoQ to 13.8%; our estimate: 15.3%).
- PAT increased 27.7% YoY to INR12.0b, higher than our estimate of INR9.38b (28% beat), led by lower forex losses (INR0.8b v/s our estimate of INR1.9b) and lower ETR (17.8% v/s our estimate of 25%).
- Broad-based growth, BPO skew continues: Barring TME (-0.8% QoQ), revenue growth was broad based (2.5%-6.7% QoQ) across verticals. Growth continued to be led by BPO, which formed 28% of incremental revenue in the quarter and its revenue contribution inched up to 8.4% from 6.4% in 1QFY18. BPO skew of the recent quarters is also reflected in the headcount - since 4QFY17, software services professionals headcount is down by 10,618 (13%), while BPO headcount is up by 15,025 (53%).
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.
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