Experts give thumbs up to Tech Mah's Q2 performance

With Tech Mahindra reporting a 14.1 percent sequential growth in net profit at Rs 720 crore in the second quarter and consolidated earnings before interest and tax (EBIT) jumped 22.56 percent sequentially to Rs 955 crore, market experts Sandip Agarwal, VP-Capital Markets, Edelweiss Financial Services and Ankit Pande, Equity Research, Quant Broking give a thumbs up for this better than expected performance.Agarwal says the dollar revenues coming in at 5.2 percent were better than their expectation of 3.6-3.8 percent.Meanwhile, Pande says this bounce back from the first quarter earnings was on expected line and would keep most of the earnings consensus on track.

Consolidated total income from operations grew by 7.2 percent to Rs 5,488 crore in the quarter ended September 2014 compared to Rs 5,122 crore in June quarter while dollar revenue climbed 5.2 percent quarter-on-quarter to USD 900 million in the quarter gone by.

Below is the transcript of Sandip Agarwal and Ankit Pande’s interview with Menaka Doshi on CNBC-TV18.Q: What are you picking up of Tech Mahindra’s numbers?Agarwal: The numbers are looking better than expectation because the dollar revenue growth expectation was somewhere in the range of 3.6-3.8 percent. However, the actual numbers are looking much better than that at 5.2 percent. Similarly, on the EBITDA margin front also there is a slight bit of surprise from 19.7 percent expectation to 20 percent. So, I would say that these numbers are definitely better than expectation. Also, three large deal wins have been announced during the quarter given good Europe exposure. The expectations were also low because of significant cross currency impact which was witnessed in case of Tata Consultancy Services (TCS) and HCL Technologies. So, to that extent these numbers are definitely much better than expectation on the revenue front. Although on the PAT front they are inline. So, we have to look into more detail what has happened but possibility of a forex impact is there. Q: Numbers looking better than expected to you? Pande: We had expected very similar growth as to what they delivered. It is right along line. The margins also, our expectation was a little bit higher than the street. We were expecting operating margins of 17.7 percent; they have come only slightly below that. So, this is the kind of bounce back we expected from a very poor Q1 margin. Margin in Q1 was down 310 basis points because of utilization drop. So, I think this kind of bounce back should be expected and this should keep most of the earnings consensus, etc pretty much on track. Q: I haven’t seen the utilisation numbers yet but you are attributing whatever improvement we have seen in margins mostly to that? Pande: At least half of the normalisation would have come through from the utilisation side. Last quarter it had dipped by 200 basis from 74.4 to 72.4. So, we expected it to bounce back by half that amount in this quarter. So, that will be part of the mix but also VISA costs where there.So, these kinds of things would have normalised and should be giving a good 200 basis points relief on the margin this quarter and that has pretty much come through I think this quarter.