Tech M (ACCUMULATE, CMP Rs385 TP Rs 470) Jun’17 qtr results: Revenue miss; strict cost actions lifts operating margins (up 70bps), Other income drives PAT beat

Posted by: at 7/31/2017 04:25:00 am


TechM’s revenues grew 0.6% QoQ at US$1.1bn lower than our estimates of (2.3% qoq growth). This translates into flat-to-negative organic growth for the quarter as it would have consolidated HCI revenues in Q1 results. However, profitability improved 70bps qoq led by strong cost cutting actions during the quarter as it saw decline in Employee cost by 3.6% sequentially with total headcount cut of 1,713 to 115,980 associates. Other income grew by 73% qoq at Rs4.1bn led by higher forex gains supporting the PAT beat. Reported PAT grew by 36% qoq (6.5% yoy basis) at Rs 7.9bn well ahead of our estimates of Rs 6.4bn. Even though that the operational performance is better than estimates, Management commentary on prospects of Enterprise segment and recovery in LCC business would be crucial for its performance in the near term.

We currently have an ACCUMULATE rating with TP of Rs 470 on the stock and may review our estimates post the earnings call (today at 6:30pm – 022 3960 0613)

Jun’17 quarter results

  • Tech M has reported 0.6% QoQ US$ revenue growth to US$ 1,138 mn (+0.6% QoQ in US$ terms – CC terms growth would be flat-to-negative) lower than our expectations of 2.3% QoQ US$ revenue growth.

  • EBIDTA grew 4% qoq ahead of our estimate as EBIDTA Margins improved 70bps qoq at 12.7% ahead of our estimates of 20bps improvement. The operating margins improvement was crucial as it has guided for flat profitability for FY18 and further positive commentary on this could boost up the sentiments as street is building pessimism on outlook (Our estimate is 14.2% EBIDTA Margins for FY18).

  • Profits at Rs 7.98bn (36% QoQ, 6.5% YoY) were well ahead of our estimate of Rs6.4bn led by better operating profitability and strong other income.

Other highlights

  • Headcount:  1, 15,980, down 1,713people QoQ with IT Services headcount decline of 3,407 people QoQ.
  • Top 5/10 clients: US$ revenues from top 5 clients declined by 2% QoQ while revenues from top 10 clients declined by 2.9% QoQ.
  • North America leads amongst the geographies in terms of growth with a 4.4% QoQ growth with Europe (+1.3% QoQ). Revenues from RoW declined by 6.9% QoQ.
  • US$ revenues from Communication vertical declined by 1.8% QoQ. Enterprise Business reported a 2.7% QoQ US$ revenue growth led by strong performance in Retail, transport & logistics (5.3% QoQ) and Financial Services (2.8% QoQ).
  • Attrition (including trainees) was flat sequentially at 77%.



Jun’17 quarter results summary:
In Rs mn
Q1FY18E
Q4FY17
QoQ(%)
Q1FY17
YoY (%)
Q1FY18E
Revenues(US$ mn)
1,138
1131
0.6
1032
10.3
1,168
Net sales
73,360
74,950
-2.1
69,209
6.0
75,354
Total Income
73,360
74,950
69,209
75,354
Operating expenses
64014
65963
58919
66137
EBITDA
9,346
8,987
4.0
10,290
-9.2
9,216
Margins (%)
12.7
12.0
70
14.9
-210.0
12.2
Depreciation
2468
2835
2019
2637
EBIT
6,878
6,152
11.8
8,271
-16.8
6,579
Margins (%)
9.4
8.2
120
12.0
-260.0
8.7
Interest
-370
-318
-274
523
Other income
4106
2379
2458
1352
Pre-tax profit
10,614
8,849
19.9
11,003
-3.5
8,454
Tax provided
2698
2316
2468
2113
Profit after tax
7,916
6,533
21.2
8,535
-7.3
6,340
MI
69
-17
-464
0
Reported Profit After tax
7,986
5,880
35.8
7,500
6.5
6,340
Emkay Net Profit
7,986
5,880
35.8
7,500
6.5
6,340
EPS, Rs
9.0
6.6

8.4
6.4
7.1

Source: Company, Emkay Research


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