Motilal Oswal sees Tech Mahindra Jul-Sep revenue down 3.8%

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Broking house, Motilal Oswal expects Tech Mahindra to post revenue 3.8% QoQ revenue decline during 2QFY07 at Rs 5,649 million and net income of Rs 1,002 million down 6%.

Their report says, "We expect Tech Mahindra to report 3.8% QoQ revenue decline during 2QFY07 at Rs 5,649 million and net income of Rs 1,002 million down 6%, due to absence of one-time revenues worth Rs547m during 1QFY07. Adjusting for the same, revenues are expected to grow by 6.1% QoQ in 2QFY07.

"We expect growth rates within British Telecom (BT) to slow down during 2QFY07 considering consistent doubledigit sequential revenue growth in BT and the resulting higher base. We expect AT&T to continue to register robust growth. However, we expect muted growth within Alcatel during 2QFY07."

"We expect EBITDA margins to decline 50bp due to absence of one-time revenue earned during 1QFY07 and resulting increase in the SG&A expenses ratio in 2QFY07. We expect PAT to decline 6% QoQ to Rs1b. Our estimates do not include the one-time income through bank interest on the float money received during IPO in 2QFY07.The stock trades at 17.2xFY07E and 15.1xFY08E earnings estimates."

"Key concerns: Growth within BT; margins"

"The Indian IT services sector reported better-than-expected revenue growth in the first  quarter driven by strong volume growth and rupee depreciation. Our coverage universe  reported 9.2% QoQ revenue growth. However, margins during the quarter were below  our expectation despite 2.27% depreciation in the average rupee-dollar rate during the  quarter. This was primarily due to higher recruitment cost, visa costs and investments in  sales and marketing (which are likely to reduce in 2QFY07). The quarter saw industry  leaders such as Infosys and Wipro ramping up their sales and marketing teams. This  pushed up SG&A expenses. Net profit growth during the quarter was robust at 9.2%  QoQ despite margin decline due to strong forex gains on account of rupee movements."

"We expect a strong quarter for the IT sector in 2QFY07, with higher single digit to low  double-digit sequential growth. Infosys continues to remain our top pick in the sector  given the growth outlook for the company and the fact that it is best placed to manage  supply side pressures. We prefer Wipro and TCS over Satyam considering the latter's  lower earnings visibility and reduced flexibility in its business matrix. Amongst mid-tier  stocks, our top picks are Infotech, Subex Azure and Geometric Software."