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Tech Mahindra: Sustained momentum key to future growth

Tech Mahindra: Sustained momentum key to future growth

IT services provider Tech Mahindradelivered robust revenue growth for the June 2013 quarter on consolidated basis after accounting for the merger with Satyam Computer Services.

While it reported an increase in the number of clients with billing size less than $10 million, the number of large-ticket clients was relatively smaller reflecting the steep competition for bigger multi-year deals. In addition, sluggish addition in the headcount and a higher attrition rate compared to some of its larger peers, raise concern over demand scenario in the coming quarters.

 

Tech Mahindra: Sustained momentum key to future growth

Ranjit Shinde, ET Bureau Aug 12, 2013, 06.15PM IST
(IT services provider Tech…)

MUMBAI: IT services provider Tech Mahindra delivered robust revenue growth for the June 2013 quarter on consolidated basis after accounting for the merger withSatyam Computer Services. While it reported an increase in the number of clients with billing size less than $10 million, the number of large-ticket clients was relatively smaller reflecting the steep competition for bigger multi-year deals. In addition, sluggish addition in the headcount and a higher attrition rate compared to some of its larger peers, raise concern over demand scenario in the coming quarters.

For the June 2013 quarter, net sales rose by 3.7% sequentially to $724.1 million. This was better than 2.75 growth reported by Infosys and 3.1% by HCL Tech.

Tech Mahindra's operating profit (EBDIT) grew at a faster rate of 6.4% sequentially compared to the sales growth reflecting an expansion in margin. Operating profitability rose by 50 basis points to 21%.

The rupee denominated growth was stronger due to the weaker currency against the dollar, the euro, and the pound. Revenue rose by 8.9% to Rs 4,103 crore whereas operating profit increased by 12% to Rs 864 crore. Net profit increased by 7.6% to Rs 686 crore, which faster than the dollar denominated growth of 2% to $120.6 million.

The company management has cited an improving demand scenario in the US market, which contributed 45% to the total revenue during the June 2013 quarter. However, the European business, which accounted for 32% of the topline remains sluggish.

The company's number of active clients increased to 567 from 484 a year ago. However, most of the addition has happened in the small-ticket accounts. The number of clients with billing size above $50 million increased by three over the past four quarters.

The company's stock hit a 52-week high of Rs 1,291.8 on the BSE on Monday. At the day's closing price of Rs 1,265.8, it traded at a trailing 12-month P/E of 13.3, which is on a lower side when compared with the P/Es of its larger peers including TCS (P/E of 24.6) and HCL Technologies (15.8). For a rerating of the stock, Tech Mahindra needs to demonstrate a sustainable business momentum in the coming quarters, which will be a daunting task considering the intense competition in the global IT outsourcing market.