X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Tech Mahindra: Mahindra Satyam saves the day - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Tech Mahindra: Mahindra Satyam saves the day
Jan 24, 2011

Tech Mahindra has announced its 3QFY11 results. The company has reported a 21% QoQ decline in sales and a whopping 71% QoQ growth in its net profit. Here is our analysis of the results.

Performance summary
  • Net sales declined by 21% QoQ. Revenues of 2QFY11 had included one-time revenue of Rs 2,990 m on account of third party hardware and software purchased for a customer, which was not present during the current quarter. Excluding this, revenues declined by 1.9% QoQ during the quarter.
  • Operating margins improved by 2.3% QoQ on the back of lower operating expenses (as percentage of total sales).
  • Bottom line grew by a whopping 70.6% QoQ mainly due to higher other income as well as gains from associate Mahindra Satyam as against the losses seen during the previous quarter (2QFY11). Net profit was also aided by the exceptional income of Rs 416 m on account of its associate, Mahindra Satyam.
  • The company's employee base stood at 34,208 as at the end of December 2010, which means that about 201 employees were added during the quarter.
  • Added around 2 new clients during the quarter, taking the total number of active clients to 126.

Consolidated Financial Snapshot
(Rs m) 2QFY11 3QFY11 Change 9MFY10 9MFY11 Change
Sales 15,339 12,111 -21.0% 34,421 38,787 12.7%
Expenditure 12,521 9,613 -23.2% 25,884 31,344 21.1%
Operating profit (EBITDA) 2,818 2,498 -11.4% 8,537 7,443 -12.8%
Operating Profit Margin (%) 18.4% 20.6% 2.3% 24.8% 19.2%  
Other income 83 522 525.7% 15 857  
Interest 270 252 -6.5% 1,873 786 -58.1%
Depreciation 347 348 0.2% 939 1,048 11.6%
Profit before tax 2,285 2,420 5.9% 5,740 6,467 12.7%
Tax 419 359 -14.2% 898 1,090 21.4%
Minority interest 7 (6)   (22) (4)  
Profits from associates (367) 99   - 99  
Exceptional income / (losses) - 416   (85) 49  
Profit after tax/(loss) 1,507 2,570 70.6% 4,735 5,520 16.6%
Net profit margin (%) 9.8% 21.2%   13.8% 14.2%  
No of shares (m) 125.7 125.9   122.3 125.9  
Diluted earnings per shares*#         61.9  
P/E ratio#         11.3  
# On a trailing 12-months earnings basis

What has driven performance in 3QFY11?
  • Tech Mahindra recorded a 21%% QoQ decline in its sales during the quarter. Revenues of 2QFY11 had included one-time revenue of Rs 2,990 m on account of third party hardware and software purchased for a customer, which was not present during the current quarter. Excluding this, revenues declined by 1.9% QoQ during the quarter. There was an overall decline in revenues across all of the company's segments. Its 'telecom service provider' (TSP) witnessed a decline of 22.8% QoQ during the quarter. The 'telecom equipment manufacturer' (TEM) segment and the BPO segments saw a decline of 14.8% QoQ and 0.6% QoQ respectively. The 'others' segment witnessed a muted growth of 1.1% QoQ during the quarter.

  • During the quarter, Tech Mahindra derived 32%, 54% and 14% of its revenues from the US, Europe and ROW (rest of the world) regions respectively. The revenues from US witnessed a muted growth of 1.1% QoQ during the quarter. The company's European woes continued as revenues from the region declined by 0.8% QoQ during the quarter. Sales from the ROW region registered a sharp decline of 65.5% QoQ during the quarter.The company has increased its engagement with its current clients, thus taking the number of 'greater than US$ 10 m' clients to 15.

    Revenue breakup
    (Rs m) 2QFY11 3QFY11 Change
    On the basis of segments      
    Telecom service provider (TSP) 13,691 10,567 -22.8%
    Telecom equipment manufacturer (TEM) 684 583 -14.8%
    BPO service 771 767 -0.6%
    Others 193 195 1.1%
    Total 15,339 12,111 -21.0%
    On the basis of geography      
    US 3,835 3,876 1.1%
    Europe 6,596 6,540 -0.8%
    Rest of the world 4,908 1,696 -65.5%

  • Tech Mahindra's operating margins improved by 2.3% QoQ due to a decline in operating expenses (as percentage of total sales).

  • The company's utilization levels improved to 76% as against 75% in 2QFY11.

  • Tech Mahindra's net profits grew by 70.6% QoQ during the quarter. This was due to a whopping increase in the other income as well as gains from associate as against the losses seen during the previous quarter. Net profits were also aided by the Rs 416 m of gains on account of prior period income related to its associate, Mahindra Satyam. Tech Mahindra would be consolidating Mahindra Satyam's results with a one quarter lag for some time. This would allow the latter to gets its business in order.

What to expect?
At the current price of Rs 702, the stock is trading at a multiple of 8.1 times our estimated FY13 earnings. The current quarter has seen the demand from the company's main vertical - telecom, remain sluggish. There has been a decline in discretionary spending as well which has led to volumes remaining almost flat. The management expects growth to remain sluggish till almost the second quarter of the calendar year 2011. The management also thinks that pricing would remain stable in times to come. However, it does expect tax rates to go up by 4-5% once the STPI benefit goes off. The company's tax rate currently stands at around 14.8%.

While there has been some clarity on Mahindra Satyam, we believe that it is still too early to form a definite view on the company.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TECH MAHINDRA SHARE PRICE


Feb 21, 2018 (Close)

TRACK TECH MAHINDRA

  • Track your investment in TECH MAHINDRA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

TECH MAHINDRA - TAKE SOLUTIONS COMPARISON

COMPARE TECH MAHINDRA WITH

MARKET STATS