TechM needs substantial deals for growth: Elara Capital

Tech Mahindra posted a 19.2 percent fall in its second quarter to Rs 643.4 crore. Revenue in the July-September quarter rose 3.6 percent to Rs 7,167.4 crore on sequential basis. While the numbers have been in line with expectation, it has to be seen whether growth has come from outside telecom or not, said Ravi Menon of Elara Capital. TechM is riding high on growth from inorganic side mostly, said Sarabjit Kaur Nagra of Angel Broking. “Margins have taken a hit, but it can be adjusted as it is coming at the behest of higher growth,” she said. Menon is bearish on the stock and said some big deal is needed to revive growth for the company. Below is the verbatim transcript of Ravi Menon and Sarabjit Kour Nangra's interview to Varinder Bansal and Sonia Shenoy on CNBC-TV18.Q: The earnings before income tax (EBIT) is showing a bit of a disappointment compare to at least what the poll was throwing up, but on the back of these prima facie numbers what would your view be?Menon: In absolute term it is exactly in line with our estimates at Rs 825 crore, but the dollar revenue is a significant beat, we were expecting only percentage and half - - there is some of these revenues are high cost like onsite what the reason why margins been little lower than expected and why the strong revenue growth.Varinder: How much in this 3.7 percent dollar revenue growth, how much you anticipate could be organic as well as inorganic?Menon: I don’t think there was any significant in organic component expected this quarter. There is a little bit probably from additional ones of Pininfarina, but I don’t think there was anything else.Sonia: It seems like it is a beat as far as the dollar revenue growth and constant currency growth is concerned, but on the margins once again you could be left wanting for more, what would your reaction be?Nangra: As long as the numbers for Tech Mahindra goes definitely we know Tech Mahindra is currently riding on inorganic growth also and that is why top line is the current focus, because with acquisition it is very imperative that they start contributing. We have seen in the case of Wipro it is not the case, so it is pretty dominantly inorganic. In that comparison it is a good set of numbers and top line so it is understood that these acquisitions will start contributing on the net profit eventually after a lack period.I guess going by what is actually tactical, what is feasible I guess decent set of numbers, but as you said margins are taken a bit hit in comparison to expectation but that I can still adjust because it still coming at the behest of higher growths - - probably that will get rectified as we move forward. I think decent sets of number overall if I have to summit on.Sonia: On the stock what would your view be now?Menon: I think if the growth is come outside of telecom that would be very welcome, because the competitiveness outside of telecom is rather limited. If it mostly telecom led it could be just normalisation from Comviva business picking up, so we have to see there is a sustainable revenue growth going forward.