Accumulate Tech Mahindra; target of Rs 1100: PLilladher

Prabhudas Lilladher is bullish on Tech Mahindra and has recommended accumulate rating on the stock with a target of Rs 1100 in its November 5, 2012 research report.

“Tech Mahindra (TECHM) reported revenue/margin ahead of PLe/Consensus expectation. Moreover, lower tax rate and stronger Satyam’s contribution pushed the bottom-line performance. We continue to see problems with top client (BT). However, growth of non-BT revenue and Satyam’s performance is expected to give a boost to the bottom-line.”

“TECHM’s Q2FY13 results were ahead our expectation. The company reported revenue of Rs16.31bn (PLe: Rs15.73bn, Cons: Rs16.08bn), a growth of 5.7% QoQ (6.4% QoQ in USD terms. 5.9% @cc). Operating margins eroded by 69bps to 20.7% (PLe: 20.4%, Cons: 18.9%), despite headwinds due to wage hike and currency appreciation. Excluding Satyam, PAT declined by 5.6% to Rs.1.78bn (PLe: 1.87bn). EPS’ contribution, including Satyam’s, declined by 12.5% QoQ to Rs22.71 (PLe: Rs23.18, Cons: Rs19.70). The decline is large due to forex loss of Rs640m (Q1FY13 loss: Rs 174m).”

“Despite wage hike (-150bps) and Hutch’s contribution (-30bps), TECHM managed EBITDA margin of 20.7% (-69bps) driven by 1) improving projects profitability and 2) automation & component reuse. The management expects utilization to go up marginally, leaving room for margin tailwind, with headwinds of project ramp-ups & inorganic contribution. Revising our estimates for FY13 and FY14 upwards (Exhibit 2). We expect demand environment to be stable with recovery in deal pipeline from service provider and static show at BT. Moreover, Satyam would provide respite at the bottom-line. We retain our ‘accumulate’ rating, with a revised TP of Rs1,100, 10x FY14e earnings estimate,” says Prabhudas Lilladher research report. 

Non-Institutions holding more than 90% in Indian cos

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