MOSL: TECH MAHINDRA (Buy)-Communication and Enterprise swap momentums
Tech Mahindra: Communication and Enterprise swap momentums
(TECHM IN, Mkt Cap USD10.9b, CMP INR773, TP INR890, 15% Upside, Buy)
- A contrasting year for revenues and margins: For FY19, TECHM's USD revenue grew 4.2% YoY, EBITDA increased 34% YoY and PAT was up 13% YoY. Including the buyback of INR19.6b, the total payout for the year stood at 74.5%. For 4QFY19, USD revenue grew 1.9% YoY (our estimate: +3.5% YoY), EBITDA increased 16% YoY (our estimate: 23%) to INR16.4b, while PAT declined 7% YoY (our estimate: -1% YoY) to INR11.3b.
- 4QFY19 dragged by Enterprise: Communications (42.7% of revenue) surprised positively with sequential growth of 4.4% versus our estimate of ~3%. This was supported partly by seasonality in its products subsidiary Comviva, which was sanguine versus tepid expectations. However, Enterprise (57.3% of revenue) disappointed with a sequential decline of 2.2% in revenue versus our estimate of 1.5% growth. Revenue declined in four of the five verticals in Enterprise. The vertical was marred by the deferral of Healthcare projects into 1Q/2QFY20 and the 3Q base effect for Manufacturing and Retail. Profitability was impacted by a one-time non-recurring expense in SGA, excluding which, the EBITDA margin was 18.7% versus our estimate of 19.1%.
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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