Revenue growth of 1.9% Q/Q (flat in rupee terms) was above our expectation of a 3% decline Q/Q. EBITDA margins were flat Q/Q despite cross-currency
headwinds (GBP, euro account for 50%+ of billings) and rupee appreciation. Net income of Rs2.3B was higher than estimates largely due to significantly high other income of Rs740MM (forex gains).
Management indicated that BT revenues would remain constant at GBP70-72MM (~US$112MM) per quarter going forward. Non-BT business will continue to grow in our view, following on from the robust growth of 23% (in $ terms) seen in FY10.
Tech Mahindra management has not finalized on wage hikes for this year. Attrition at ~22% on an annualized basis in the quarter. However, management indicated that wage hikes and currency would result in margin pressures going forward. In Q4, Tech Mahindra’s EBITDA margins were stable – management attributed this to higher offshore and better business mix which offset currency pressures.
Citi, Bofa Merrill and JP Morgan have a Target of Rs 900 on the stock. Morgan Stanley has a target price of Rs 680.
