Accumulate CMC; target of Rs 1720: P Lilladher

Prabhudas Lilladher's report on CMC

"CMC reported Q3FY14 results below our & consensus expectation. The company reported revenue below our expectation; however, the margin was in-line with our expectation. The performance was led by Customer Service and Education & Training. We reiterate our ‘Accumulate’ rating, with a revised target price of Rs1,720 (from Rs1,710) as we tweak our estimates. The company reported 14 new client additions, but international business declined by 3.5 percent QoQ."

"CMC reported a flat revenue growth QoQ to Rs 5,609m (PLe: Rs5,767m, Cons: Rs5,826m). EBITDA margin expanded by 42bp to 16.2 percent (PLe: 16.2 percent, Cons: 15.8 percent) led by margin improvement in Customer Services and Education & Training. PAT grew by 4.9 percent to Rs706m (PLe: Rs711m, Cons: Rs 682m) due to lower ETR of 19.1 percent (Q2FY14: 20.1 percent, Q1FY14: 34.4 percent)."

"Sub-contracting cost declined 7.3 percent QoQ due to decline in ITES and international business. The weakness in international market has been attributed to seasonality. The client addition (49 clients) has been strong over the past three quarters. We expect the project ramp-ups would push the sub-contracting cost up. We see the margin expansion driven by offshore drive continues to remain elusive."

Read More