For 3QFY2016, Tech Mahindra posted a 0.4% qoq growth in revenues to
US$1,015mn V/s an expected US$1,021mn and V/s US$1,011mn in 2QFY2016.
On constant currency (CC), the company posted a 1.2% qoq revenue growth. On
the operating front, the EBDITA margin came in at 16.9% V/s an expected 17.2%
and V/s 16.6% in 2QFY2016, a qoq expansion of 70bp. The EBIT margin came
in at 14.3% V/s an expected 14.2% and V/s 13.7% in 2QFY2016. The company
posted a net profit of Rs759cr V/s an expected Rs809cr and V/s Rs786cr in
2QFY2016, a qoq de-growth of 3.4%. We remain positive on the stock and
recommend a Buy rating with a price target of Rs530.
Result highlights: For 3QFY2016, the company posted a 0.4% qoq growth in
revenues to US$1,015mn V/s an expected US$1,021mn and V/s US$1,011mn in
2QFY2016.. In INR terms, the company posted sales of Rs6,701cr V/s an expected
Rs6,729cr, a qoq growth of 1.3%. On CC, the company posted a 1.2% qoq
revenue growth. The growth was mainly driven by ROW, which constituted around
23.2% of sales in 3QFY2016 V/s 21.9% of sales in 2QFY2016. USA and Europe
constituted 47.8% (48.9% of sales in 2QFY2016) and 28.9% (29.3% of sales in
2QFY2016) of sales, respectively. In terms of industry, the growth was driven by
manufacturing. On the operating front, the EBDITA margin came in at 16.9% V/s
an expected 17.2% and V/s 16.6% in 2QFY2016, a qoq expansion of 70bp. The
EBIT margin came in at 14.3% V/s an expected 14.2% and V/s 13.7% in
2QFY2016. The company posted a net profit of Rs759cr V/s an expected Rs809cr
and V/s Rs786cr in 2QFY2016, a qoq de-growth of 3.4%.
Outlook and valuation: The Management remains confident of reverting back to
the original profitability by FY2017-18. We expect a CAGR of 10.3% and 13.6% in USD and
INR revenue respectively over FY2015-17E, driven by acquisitions. The PAT is expected to
grow at a CAGR of 10.8% over FY2015-17. We maintain our Buy on the stock.
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