Motilal Oswal neutral on Tech Mahindra

Motilal Oswal has maintained neutral rating on Tech Mahindra with a target of Rs 710, in its May 24, 2012 research report.

“The sequential decline in Tech Mahindra’s (TECHM) 4QFY12 revenue was driven by the non-BT segment (Indian telco accounts); BT revenue stabilized after significant slowdown in its retendering activity. Focus on margins in BT may drive volume trade-off, going forward. Multiple levers to TECHM’s margins may be offset by continued shift in revenue mix towards BPO and Emerging Markets.”

“Revenue at USD281.6m (-2.5% QoQ) was below our estimate of USD290m. EBITDA margin was in-line at 16.8% (+60bp QoQ), driven by 100bp QoQ increase in utilization to 74% and slight currency benefit. PAT (excluding one-time provision and Mahindra Satyam contribution) was INR1.32b, lower than our estimate of INR1.4b on: [1] lower revenue, and [2] lower other income- loss of INR211m v/s our estimate of INR66m gain. While opportunities like Managed Services in developed markets, Network Services and IMS keep growth outlook in the non-BT segment positive, the revenue mix is likely to have margin implications- the share of BPO increased from 5.9% in 1QFY09 to 10.4% in 4QFY12 and the share of Emerging Markets increased from 6% in 1QFY09 to 20%.”

“We revise our revenue estimates down marginally by 2%/4% for FY13/14, factoring in the ramp-downs in Indian clients. However, our EBITDA margin estimates are higher than earlier, after management commentary suggested focus on BT margins, multiple levers to grow profitability and opportunistic stance on wage inflation. BT revenue remains a key risk. Maintain Neutral,” says Motilal Oswal research report.  

FIIs holding more than 30% in Indian cos

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