Tech Mahindra (BOM:532755)

QUOTE AND NEWS
The Hindu Business Line  Jul 11  Comment 
Tech Mahindra Vice-Chairman Vineet Nayyar took home a total pay package of ₹181.74 crore in 2015-16, largely on account of stock options encashed by him, making him one of the highest paid executives...
The Economic Times  Jun 24  Comment 
The company’s shares were down 5 per cent in Friday afternoon trade, as traders factored in the potential impact of Brexit on the company.
The Economic Times  Jun 24  Comment 
Tech Mahindra will be hurt less because it has less exposure to BFSI. Even though it has 10% exposure to the GBP, the INR is likely to depreciate.
The Economic Times  Jun 24  Comment 
As Britain has voted to exit the European Union, India’s $150 billion software services export industry which has a sizable exposure to Europe braces up for a phase of uncertainty.
The Economic Times  Jun 23  Comment 
Infosys rose by 0.53 per cent while TCS fell by 1.51 per cent and Tech Mahindra went down by 0.95 per cent.
The Economic Times  Jun 23  Comment 
The acquisition will contribute 0.4 per cent of total revenues in FY17e for Tech Mahindra. The global brokerage firm estimates that the acquisition will be EPS neutral to marginally accretive in FY17e.
The Hindu Business Line  Jun 22  Comment 
Tech Mahindra has snapped up digital transformation firm UK-based entity BIO Agency for 40 million pounds in an all-cash deal to expand its digital portfolio. The consideration is the enterprise va...
The Economic Times  Jun 22  Comment 
Tech Mahindra said it agreed to buy UK-based digital technology firm The BIO Agency for an enterprise value of 40 million pounds , as it continues its acquisition spree.
The Economic Times  Jun 16  Comment 
Gurnani, who is also the chairman for IT industry body Nasscom, said despite several geopolitical and economic challenges, Brexit could ultimately mean be business as usual for India and TechM.
The Economic Times  Jun 6  Comment 
The management remains confident of reverting back to the original profitability by FY2016-18E.




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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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