MOSL: TECH MAHINDRA (Buy)-Encouraging deal wins and good outlook
Tech Mahindra: Encouraging deal wins and good outlook
(TECHM IN, Mkt Cap USD10.8b, CMP INR795, TP INR920, 16% Upside, Buy)
Margins – key monitorable; Reiterate Buy
- In a weak demand environment, TECHM surprised by announcing USD1.2b new deal wins (+180% YoY). In conjunction with the AT&T deal (ramped up in Dec’19), this should translate into strong revenue growth in FY21 (13%, USD). Differences in the portfolio mix will likely keep TECHM insulated from the current weak demand environment within BFSI and Retail. Conscious of the impending margin pressures led by large deal ramp ups, we build in only slight margin expansion (90bp) over FY20-22. This should be led by profitability improvement at portfolio companies and moderation in sub-contractor costs.
- We upgrade our EPS estimates for FY20-22 by 8%-10% as we factor in large deal wins and adjust forex gain estimates. Reiterate Buy.
Beat on revenue growth and margins
- USD revenue grew 7.3% YoY (estimate of 4.5%), operating profit declined 18% YoY (Estimate of 20% decline) and PAT declined 5% YoY (Estimate of 16% decline)
- On a sequential basis revenue increased 4.3% (CC) v/s our estimate of ~2% growth. Strong revenue growth was largely driven by the ramp-up of the large deal in telecom (AT&T). Telecom segment grew ~9% QoQ (USD).
- Surprisingly, even the BFSI (~7% QoQ, USD) and Retail (~8% QoQ, USD) verticals have shown strong sequential growth during the quarter.
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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