Accumulate Tech Mahindra; target of Rs 1100: PLilladher

Prabhudas Lilladher`s research report on Tech Mahindra

"Tech Mahindra (TECHM) reported Q4FY13 revenues ahead of PLe/Consensus expectation. However, forex loss during the quarter affected the bottom-line of the standalone entity. On a consolidated basis, PAT grew ahead of expectation. Comviva.s seasonality helped getting better-than-expected revenue growth, but organic growth continues to remain anaemic"

"TECHM.s Q4FY13 results were ahead of our expectation. The company reported revenues of Rs19,072m (PLe: Rs18,413m, Cons: Rs18,267m), a growth of 6.5 percent QoQ (7.2 percent QoQ in USD terms). Operating margins softened by 108bps QoQ to 19.9 percent (PLe: 20 percent, Cons: 19.4 percent). Excluding Satyam, PAT de-grew by 21 percent to Rs1,962m (PLe: Rs2,130m) due to a forex loss of Rs234m (Q3FY13 gain of Rs301m). EPS. contribution, including Satyam.s, grew by 36.8 percent QoQ to Rs28.3 (PLe: Rs24.547, Cons: Rs23.1). Management continues to see stronger deal pipeline with discretionary spend back in the US and cost take-off kind of deal in Europe. There are 5-6 large deals in the pipeline that may take 1-2 quarters to close.”

“The company is now being invited to some Network Security deals along with MSPs. Organic growth for the company continues to stay in the low single digit (Q4FY13: 1.5 percent QoQ). We see limited room from top clients BT, AT&T and ramping up of KPN over the next two quarters. Despite seasonality (Comviva) helping revenue momentum in the quarter along with the utilization improvement (100bps), margins eroded by 108bps in the quarter. We believe that utilization level has peaked out, with limited room for improvement in productivity. We continue to see margin headwinds in H1FY14 due to wage hike and Comviva.s seasonality.”

“We expect demand environment to witness steady improvement. Moreover, positive verdict on Satyam integration could push forward an argument for re-rating (due to bigger B/S and Revenue). Retain accumulate rating, with a TP of Rs 1,100, 10x FY14e earnings estimate," says Prabhudas Lilladher research report.

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