Tech Mahindra (BOM:532755)

QUOTE AND NEWS
The Economic Times  Jul 24  Comment 
"Tech Mahindra is a 'Buy' call with a target of Rs 2230 and a stop loss of Rs 2150."
The Economic Times  Jul 22  Comment 
Tech Mahindra will increase its investments in Korea in a bid to become the largest India-based system integrator in the Asian nation over the next three years.
The Hindu Business Line  Jul 22  Comment 
IT solutions provider Tech Mahindra will create 300 new jobs in South Korea within the next three years. The Mahindra group company aims to become the largest Indian systems integrator i...
The Economic Times  Jul 22  Comment 
Tech Mahindra has signed a joint venture agreement with Midad Holding, which is a subsidiary of Al Fozan, a pre-eminent group with diversified business interests.
The Hindu Business Line  Jul 20  Comment 
Good growth and diversified revenue mix make Tech Mahindra a good pick
The Economic Times  Jul 20  Comment 
The centre will run in partnership with NGO ANK &focus on offering better livelihood opportunities to underprivileged urban youth
The Economic Times  Jul 18  Comment 
"One has to pick from quarter to quarter but two stocks come to mind. One is Tech Mahindra, looking forward to numbers over there and second is Persistent Systems."
The Hindu Business Line  Jul 17  Comment 
Tech Mahindra, a provider of connected solutions, announced that it has signed a memorandum of understanding with Wichita State University, a state educational institution in Kansas, the US, in th...
The Economic Times  Jul 17  Comment 
Tech Mahindra is a 'BUY' call with a target of Rs 2160 and a stop loss of Rs 2070.
The Economic Times  Jul 16  Comment 
"There is huge amount of innovations that Indian cos are doing which are invisible as they are located in customers' processes," said Manoj Chugh of Tech Mahindra.




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The company was incorporated in 1986 as Mahindra-British Telecom Limited, and subsequently, in February 2006, was re-christened as Tech Mahindra Limited. The company was formed as a joint venture between Mahindra & Mahindra (M&M) and British Telecommunications Plc. Its major focus areas are telecom service providers (TSP) and telecom equipment manufacturers (TEM). British Telecommunications is Tech Mahindra’s largest client which contributes more than 50% to company’s revenue. During FY09, the company acquired 42% stake in scam-hit Satyam in order to broaden its IT services portfolio in terms of offerings, industry verticals and geographies.

Tech Mahindra’s recorded a topline growth of 19% YoY growth during FY09. This was driven by growth in the TSP segment’s revenue which grew by 15% YoY during the fiscal (the segment contributes 87% to total revenues). Operating margins expanded by 6.8% YoY during FY09, aided by a higher share of offshore business and increased utilisation. Tech Mahindra’s net profits grew by 32% YoY during the fiscal.

Going forward, Tech Mahindra could face uncertainty about revenues from its top client BT. Moreover, the interest cost for Rs 24 bn debt that Tech Mahindra borrowed for Satyam’s acquisition is weighing heavily on Tech Mahindra’s profits. Though the true picture about Mahindra Satyam’s financial accounts is still to be unveiled, the company looks confident of leveraging the synergies between the two companies. It is confident of growth opportunities in the emerging economies particularly Middle-East and India, placing it as a leading player in the telecom vertical. With its well-diversified portfolio and potential of cross-selling across clients, Tech Mahindra is poised to weather the downturn and emerge out stronger.

Consolidated Financial Performance
(Rs m) 4QFY09 1QFY10 Change
Sales 10,513 11,130 5.90%
Expenditure 7,671 8,325 8.50%
Operating profit (EBITDA) 2,842 2,805 (1.30%)
Operating Profit Margin (%) 27.00% 25.20%
Other income 78 (261)
Interest 23 571
Depreciation 286 296 3.30%
Profit before tax 2,610 1,677 (35.80%)
Tax 306 268 (12.50%)
Minority interest (1) (8)
Extraordinary income/(expense) () (85)
Profit after tax/(loss) 2,303 1,316 (42.90%)
Net profit margin (%) 21.90% 11.80%
No of shares (m) 121.9
Diluted earnings per shares*# 72.8
P/E ratio# 10.8
# On a trailing 12-months earnings basis


Segment-wise revenue breakup'
Revenues (Rs m) 4QFY09 1QFY10 Change
Telecom service provider(TSP) 8,928 9,514 6.60%
Telecom equipment manufacturer (TEM) 720 662 (8.10%)
BPO service 537 677 26.00%
Others 327 278 (15.10%)
Total 10,512 11,130 5.90%


Geography - wise revenue breakup
Revenues (Rs mn) 4QFY09 1QFY10 Change
US 2,103 3,228 53.50%
Europe 7,885 6,789 (13.90%)
Rest of the world 526 1,113 111.70%


Quarterly Result Analysis- Sept '09

Performance summary

-Topline grows by 3% QoQ in 2QFY10 on account of improved volumes across its major business segments. - Operating margin remains flat at 25.4% during 2QFY10. - Bottomline grows by 28% QoQ during the quarter, on account of huge other income component. - Adds 1,033 employees during the quarter thereby taking the total strength to 26,515 at the end of September 2009.


Consolidated Financial Snapshot
(

(Rs m)

1QFY10 2QFY10 Change 1HFY09 1HFY10 Change
Sales 11,130 11,418 2.60% 22,812 22,548 (1.20%)
Expenditure 8,325 8,520 2.30% 16,008 16,818 5.10%
Operating profit (EBITDA) 2,805 2,898 3.30% 6,804 5,730 (15.80%)
Operating Profit Margin (%) 25.20% 25.40% 29.80% 25.40%
Other income (261) 270 (59) 9
Interest 571 816 2 1,414
Depreciation 296 312 5.60% 525 608 15.80%
Profit before tax 1,677 2,040 21.60% 6,218 3,717 (40.20%)
Tax 268 345 28.80% 603 613 1.60%
Minority interest (8) (5) (2) (13)
Extraordinary income/(expense) (85) ( ) ( ) 85
Profit after tax/(loss) 1,316 1,690 28.40% 5,613 3,006 (46.40%)
Net profit margin (%) 11.80% 14.80% 24.60% 13.30%
No of shares (m) 122
Diluted earnings per shares*# 28.9
P/E ratio# 25.7
  • On a trailing 12-months earnings basis


What has driven performance in 2QFY10?

- Tech Mahindra recorded a 3% QoQ growth in topline during 2QFY10. This was driven by decent performance from its telecom service provider (TSP) and Telecom Equipment manufacturer (TEM) segments. The TSP business (86% of total revenue) contributed maximum to the growth as sales here grew by 3% QoQ during the quarter. TEM business (6% of total revenue) also recorded a healthy growth of almost 6% QoQ during the quarter. Performance of the BPO segment (6% of total revenue) declined marginally.

- The company derived 28%, 61% and 11% of its revenues in 2QFY10 from the US, Europe and ROW (rest of the world) regions respectively. The performance in the European market saw some signs of revival as the revenues grew by 2.4% for the region. The company also saw a lot of traction from the Middle-East, African, North American and Indian markets. It entered into a number of deals centered on mobile number portability, greenfield GSM operations and system integration.

- Operating margins remained at nearly 1QFY10 levels. While there was an increase in expenditure in the form of wage hikes to the tune of 6% at offshore and 2% at onsite, a higher utilisation rate helped in maintaining margins.

- Bottomline improved by 28% QoQ during the quarter. This was primarily helped by a huge other income component of Rs 270 m as against Rs 261 m loss on this account of hedging losses in the previous quarter. The huge interest costs of Rs 816 m however dented the bottomline a bit. The company had a debt of Rs 21.8 bn on its books at the end of September 2009. It refinanced Rs 11.5 bn of its debt during the quarter, bringing down the effective interest rate to 8.7% per annum. This will reduce the interest outlay going forward.


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