Result-Analysis-Elite-Wealth
Result Analysis: Tech Mahindra Limited (CMP: Rs.1,036) Result Update: Q3FY23

Tech Mahindra is one of the leading provider of consulting-led integrated portfolio services to customers around the globe. It also provides comprehensive range of IT services, including IT enabled services, application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services to a diversified base of corporate customers in a wide range of industries including insurance, banking and financial services, manufacturing, telecommunications, transportation and engineering services.

 


    Open FREE* Demat & Trading Account & ₹0 AMC for first year


     

    Stock Details
    Market Cap. (Cr.) 100905
    Face Value 486.92
    Equity (Cr.) 5
    52 Wk. high/low 1575 / 944
    BSE Code 532755
    NSE Code TECHM 
    Book Value (Rs) 275.55
    Sector IT – Software

     

    Key Ratios
    Debt-equity: 0.11
    ROCE (%): 23.78
    ROE (%): 21.76
    EPS: 53.59
    P/BV: 3.8
    P/E: 19.33

    Result Highlights:

    • Tech Mahindra posted soft results in the December’22 quarter with Revenue increase of 4.6% QoQ to Rs.13,735 cr. and Net profits increase of 0.9% QoQ to Rs.1,297 cr.

    • EBIT of the company increased by over 10% QoQ to Rs.1,646 cr. and EBIT margin increased with 60 bps to 12% compared to previous quarter.

    • Among industries Retail, Technology and Communication segments’ revenue% have grown by 40bps, 20bps and 10bps respectively while BFSI and Manufacturing segment revenue % de-grew by 40bps and 30bps.

    • Across geographies, America and Europe revenue% declined by 110bps and 10bps in the quarter. While revenue% from Rest of the world showed growth of 120bps on QoQ basis.

    • Company Net New Deal wins stands at USD 0.8bn in the quarter vs USD 0.72bn in the September’ 22 quarter.

    • Attrition rate has dropped significantly by 208bps from 19.6% in September quarter’22 to 17.3% in this quarter. Company has reduced its total headcount by 6,844, now counts to 1,57,068.

    • The management of the company has shown concerns over the prevailing macro-economic environment as witnessing delayed decision makings from clients.

    • Company has guided to achieve exit EBIT of 14% by FY23.

    Financial  Performance:

    Shareholding Pattern:

    Particulars %
    Promoters & Promoter Group 35.19
    FIIs 28.97
    DIIs 23.94
    Public 11.19
    Others 0.71

    Management Commentary:

    • Commenting on the December quarter results, CP Gurnani, CEO and MD said, we are witnessing moderation in growth given the tough macro-economic environment. We will continue to work with our customers to pre-empt their technological requirements and identify new demand drivers, especially for digital services.

    • Rohit Anand, CFO said, our numbers reflect resilience as we continue to work on the expansion of operating margin. I am confident that our strategy of client centricity & agility combined with delivery led transformation will help us create value for our customers and stakeholders alike.

    Outlook:

    Tech Mahindra has reported mixed performance in Q3FY23 with 4.6% growth in the revenue and 0.9% growth in the PAT on quarterly basis. America and Europe has shown decline in the revenue% due to the prevailing macro-headwind in these regions. Extending layoffs, delay in 5G capex and prevailing headwinds in Europe will impact the revenue growth of Tech Mahindra and could delay in achieving the forecasted EBIT guidance of FY23. For the nine months of FY23 company has reported the earnings of Rs.42.1 and we expect the company to close the FY23 at the eEPS of Rs.56.1. Based on the estimated earnings, Tech Mahindra is available at PEx of 18.5 at the current market price.

    Results:

    Particulars (In Rs. Cr.) Q3FY23 Q2FY23 Q3FY22 QoQ% YoY% 9MFY23 9MFY22 FY22
    Revenue from Operations 13,735 13,130 11,451 4.6% 19.9% 39,572 32,530 44,646
    Other Income 247 290 223 -14.8% 10.8% 660 793 1,112
    Total Income 13,982 13,420 11,674 4.2% 19.8% 40,232 33,322 45,758
    Employee Benefit Expenses 7,055 6,895 5,660 2.3% 24.6% 20,500 16,238 22,286
    Employee benefit Expenses as % of Sales 51.4% 52.5% 49.4% -120 bps 190 bps 51.8% 49.9% 49.9%
    Subcontracting Expense 1,974 2,025 1,874 -2.5% 5.3% 6,064 5,051 6,957
    Depreciation & Amortisation Expense 498 492 362 1.3% 37.6% 1,467 1,036 1,520
    Other Expense 2,562 2,226 1,856 15.1% 38.0% 6,999 5,309 7,383
    EBIT 1,646 1,492 1,698 10.3% -3.1% 4,542 4,895 6,500
    EBIT Margin 12.0% 11.4% 14.8% 60 bps -280 bps 11.5% 15.0% 14.6%
    Profit After Tax (PAT) 1,297 1,285 1,369 0.9% -5.3% 3,714 4,060 5,566
    PATM (%) 9.4% 9.8% 12.0% -30 bps -250 bps 9.4% 12.5% 12.5%
    EPS (in Rs.) 14.7 14.58 15.58 0.8% -5.6% 42.11 46.23 63.32

     

    Segment Revenue (In Rs. Cr.) Q3FY23 Revenue% Q2FY23 QoQ% Q3FY22 YoY%
    IT 11800 85.9% 11,398 3.5% 10,001 18.0%
    BPO 1935 14.1% 1,731 11.8% 1,450 33.4%
    Total 13,735 100% 13,130  – 11,451

     

    Geography Revenue % Q3FY23 Q2FY23 Q3FY22 QoQ YoY
    America 49.7% 50.8% 48.9% -110 bps 80 bps
    Europe 24.4% 24.5% 25.5% -10 bps -110 bps
    Rest of the World 25.9% 24.7% 25.6% 120 bps 30 bps

     

    Segment Revenue % Q3FY23 Q2FY23 Q3FY22 QoQ YoY
    Communications, Media & Entertainment 39.80% 39.70% 40.90% 10 bps -110 bps
    Manufacturing 15.70% 16.00% 15.80% -30 bps -10 bps
    Technology 10.30% 10.10% 8.40% 20 bps 190 bps
    Banking, Financial Services & Insurance 15.90% 16.30% 15.40% -40 bps 50 bps
    Retail, Transport & Logistics 8.50% 8.10% 8.50% 40 bps
    Others 9.90% 9.80% 10.90% 10 bps -100 bps
    Source: Company website, EWL Research

    Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014

    Elite Wealth Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only information in making their investment decision and must exercise their own judgment before making any investment decision.
    For analyst certification and other important disclosures, see the Disclosure Appendix, or go to www.elitewealth.in. Analysts employed by Elite Wealth Limited are registered/qualified as research analysts with SEBI in India.( SEBI Registration No.: INH100002300)
    Disclosure Appendix
    Analyst Certification (For Reports)
    Israil Khan, Elite Wealth Limited, suhail@elitewealth.in
    The analyst(s) certify that all of the views expressed in this report accurately reflect my/our personal views about the subject company or companies and its or their securities. I/We also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Elite Wealth Limited.
    As to each individual report referenced herein, the primary research analyst(s) named within the report individually certify, with respect to each security or issuer that the analyst covered in the report, that:
    (1) all of the views expressed in the report accurately reflect his or her personal views about any and all of the subject securities or issuers; and
    (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in the report.
    For individual analyst certifications, please refer to the disclosure section at the end of the attached individual notes.
    Research Excerpts
    This note may include excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please visit www.elitewealth.in.
    Company-Specific Disclosures
    Important disclosures, including price charts, are available and all Elite Wealth Limited covered companies by visiting https://www.elitewealth.in, or emailing research@elitestock.com with your request. Elite Wealth Limited may screen companies based on Strategy, Technical, and Quantitative Research. For important disclosures for these companies, please e-mail research@elitestock.com.
    Options related research:
    If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the risk disclosure documents, please contact your Broker’s Representative or visit the OCC’s website at https://www.elitewealth.in
    Other Disclosures
    All research reports made available to clients are simultaneously available on our client websites. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your respective broker’s sales person.
    Ownership and material conflicts of interest Disclosure
    Elite Wealth Limited policy prohibits its analysts, professionals reporting to analysts from owning securities of any company in the analyst’s area of coverage. Analyst compensation: Analysts are salary based permanent employees of Elite Wealth Limited. Analyst as officer or director: Elite Wealth Limited policy prohibits its analysts, persons reporting to analysts from serving as an officer, director, board member or employee of any company in the analyst’s area of coverage.
    Country Specific Disclosures
    India – For private circulation only, not for sale.
    Legal Entities Disclosures
    Mr. Ravinder Parkash Seth is the Managing Director of Elite Wealth Ltd (EWL, henceforth), having its registered office at Casa Picasso, Golf Course Extension, Near Rajesh Pilot Chowk, Radha Swami, Sector-61, Gurgaon-122001 Haryana, is a SEBI registered Research Analyst and is regulated by Securities and Exchange Board of India. Telephone:011-43035555, Facsimile: 011-22795783 and Website: www.elitewealth.in
    EWL discloses all material information about itself including its business activity, disciplinary history, the terms and conditions on which it offers research report, details of associates and such other information as is necessary to take an investment decision, including the following:
    1. Reports
    a) EWL or his associate or his relative has no financial interest in the subject company and the nature of such financial interest;
    (b) EWL or its associates or relatives, have no actual/beneficial ownership of one per cent. or more in the securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance;
    (c) EWL or its associate or his relative, has no other material conflict of interest at the time of publication of the research report or at the time of public appearance;
    2. Compensation
    (a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
    (b) EWL or its associates have not managed or co-managed public offering of securities for the subject company in the past twelve months;
    (c) EWL or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
    (d) EWL or its associates have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
    (e) EWL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
    3 In respect of Public Appearances
    (a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
    (b) The subject company is not now or never a client during twelve months preceding the date of distribution of the research report and the types of services provided by EWL