Healthy margin expansion of ~400bps over two years has led to re-rating of the stock. But now, with limited margin levers available, focus will shift back to growth, which is under pressure (+4.2% in FY19, second lowest in Tier-1 IT). Slowing growth in Enterprise, challenges in Manufacturing and BFSI is adding to the worries. Also, sustainability of Telecom growth is questionable considering macro concerns. Overall, we expect USD revenue CAGR of 7.2% over FY19-21E led by Telecom/Enterprise CAGR of 8/7%. Growth and margin challenges will lead to 5.4% earnings CAGR over FY19-21E. TechM trades at a P/E of 15.6x FY20E, which is expensive considering inferior growth metrics, thus we downgrade it to SELL. Risk to our thesis includes better than expected macros in US/Europe, uptick in 5G spending and INR depreciation. We downgrade Tech Mahindra to SELL (from BUY), post weak 4QFY19. Slowdown in Enterprise segment and peaking margins are a cause of concern. Growth metrics remain weak (+5.4% earnings CAGR) with inferior business mix vs. peers (Telecom dependency). We cut earnings est. by ~4% and multiple to 12x (vs 15x earlier) to arrive at a TP of Rs 652 (~15% downside from CMP).

All the three OMCs IOCL, BPCL and HPCL reported Q4FY19 earnings well above estimates due to a surge in marketing segment earnings (80-130% YoY) to recoup the massive inventory losses incurred in Q3. However, these margins have normalised from Q1FY20. GRMs across OMCs were muted, with BPCL trailing the pack due to steep underperformance at its Kochi refinery. We maintain BUY on IOCL but retain SELL on BPCL/HPCL due to...

Communication grew well better than expectations in the quarter. We expect momentum in communication to continue in FY20E. Hence, we expect growth to be more balanced between communications and enterprise segment vs. prior expectations of mid-single digit growth in communication and 8-10% growth in the latter. Lower growth in enterprise is due to weak outlook in healthcare, BFSI and cut down of less profitable projects. On the deal front, pipeline continues to be healthy with TCV of US$408 million in Q4FY19 and 33% YoY growth in FY19. Although the...

Telecom is back on the growth trajectory due to multiple broad-based services deals.Action on the 5G rollout front- not as significant currently - is expected to accelerate CY20 onwards; lest there is positive disruption driven by some Service providers.

TECHM's Q4FY19 result was a slight miss to our forecast. Revenue remained unchanged QoQ in CC vs. our forecast of +1% QoQ. This and INR appreciation resulted in EBIT margin declining by 70bps QoQ to 15.4% (-35bps adjusted for one-time charge). EPS of Rs12.8, -6%/-7.8% QoQ/YoY missed our forecast by ~7%. In Q4, TECHM has secured large deals with TCV of US$408 mn taking the TCV for FY19 to ~US$1.7 bn. TECHM has maintained its high single-digit revenue growth outlook for FY20 and now expects Communication vertical (42.7% of revenue) to lead the growth. We factor Q4FY19 miss and trim our FY20E revenue (in US$)/EPS by 1.8%/2.9% and also...

Lopsided growth yet again as enterprise business disappoints Tech Mahindra's (TECHM) Mar'19 quarter was below estimates due to a disappointing performance from the enterprise business where a few large projects drew to a close and new contract signing was delayed. Enterprise revenue dipped 2.2% QoQ while communication revenue increased 4.4%. Management retained its FY20 growth outlook and is targeting flat to marginally better operating margins. We trim FY20/FY21 earnings estimates...

Tech M had an impressive FY19 with EBITDA margins expanding by ~290bps Change in Estimates | Target | Reco YoY, strong TCV growth of 43% YoY to US$400mn in Q4FY19. Digital services grew 41% YoY and stands at 31% of the total revenues in FY19. Overall, Tech...

A contrasting year for revenues and margins: For FY19, TECHM's USD revenue grew 4.2% YoY, EBITDA increased 34% YoY and PAT was up 13% YoY. Including the buyback of INR19.6b, the total payout for the year stood at 74.5%. For 4QFY19, USD revenue grew 1.9% YoY (our estimate: +3.5% YoY), EBITDA increased 16% YoY (our estimate: 23%) to INR16.4b, while PAT declined 7% YoY (our estimate: -1% YoY) to INR11.3b. 4QFY19 dragged by Enterprise: Communications (42.7% of revenue) surprised positively with sequential growth of 4.4% versus our estimate of...

TechM delivered healthy performance in Q3FY19 with revenue growth of 3.5% QoQ in USD terms (+4.3% QoQ in CC terms), ahead of our estimate. EBITDA margin expansion continued to beat estimate with an improvement of 50...

21 February 2019 INR19.56b (<10% of net worth) was decided after taking stock of the future needs of capital for the business. It is also tax efficient for the company. This buyback is not in lieu of dividend. However, the company would not like to retain too much excess cash. TECHM will go for a Dividend + Buyback strategy in the future based on the need of the business. In the past, every time TECHMs net cash (including investments) has exceeded or come close to INR40b, there has been some allocation toward inorganic growth. That did not happen this time around, and the net cash position increased to INR65b in the last four quarters. The quantum of buyback brings total net cash down to that range at INR45b. If TECHM pays same dividend as last year (INR14/share), it will bring net cash down to INR30-35b.

Tech Mahindra Ltd. reported healthy broad based growth in Q3 FY19. Tech Mahindra reported consolidated revenue growth of 3.5% on QoQ and 4.3% on constant currency basis. EBITDA margin expanded 300 bps on YoY basis and 50 bps on QoQ basis.

Maintain BUY with a TP of Rs 880 based on 15x Dec-20E earnings. Tech Mahindra delivered healthy performance both on revenue and margin front. Revenue stood at USD 1,261mn (+3.5% QoQ, +4.3% CC), ahead of our est of USD 1,244mn. Enterprise (59% of rev) grew 4.2% QoQ led by Digital (33% of rev, +10% QoQ) and recovery in Manufacturing and BFSI. Management expects Enterprise segment to grow at ~10% CC YoY led by increased Digital adoption and strong TCV wins (USD 490mn in last two quarters).

Margin Gains Peaking, More Focus On Growth Likely Tech Mahindra's (TML's) 3QFY19 performance was robust - both in terms of revenue growth and margin expansion. Revenues grew 4.3% in CC terms (our estimate 3%) and EBITDA margin was 50bps above our estimate (although a sharp dip of 150bps in SG&A; expenses was not adequately explained). Ever since the collapse of its EBITDA margin to a low of 12% in 4QFY17, the focus of TML has been to largely bring that back to a respectable level. This has been an seven-quarter journey which we believe is largely done. The margin expansion has come about through tightening of operations (employee utilisation, higher use of automation, better portfolio profitability, modest salary hikes) and also through improving yields on its...

Tech Mahindra posted good numbers for 3QFY2019 on all fronts. Revenues rose 3.5% qoq to end the period at US$1,261mn. On CC (constant currency) terms of the 4.3% qoq. In Rupee terms, revenues came in at `8,944cr v/s. `8,630cr in 2QFY2019, up 3.6% qoq. On the operating front, the EBITDA margin came in at 19.3%

Tech Mahindra (TechM) reported a healthy performance on all fronts in Q3FY19 with 4.3% constant currency revenue growth (vs. our estimate of 3%) and 50 bps margin expansion to 19.3% US$ revenues grew 3.5% QoQ to $1261 million (vs. our estimate $1248.2 million) mainly led by growth in telecom (2.5% QoQ), manufacturing (5.6% QoQ) and BFSI (2.7% QoQ) On the margin front, the EBITDA margin increased 50 bps QoQ to 19.3% led by 6.2% QoQ decline in SG&A; expenses and benefit of...

5 February 2018 grew 28% YoY (our estimate of flat growth) to INR12.0b in 3QFY19. Gross margin shrank 100bp QoQ to 33%. However, EBITDA margin expanded 50bp QoQ to 19.3% (above our estimate of 18.9% by 40bp), PAT increased 27.7% YoY to INR12.0b, higher than our estimate of INR9.38b (28% beat), led by lower forex losses (INR0.8b v/s our estimate of INR1.9b) and lower ETR (17.8% v/s our estimate of 25%).

We believe Tech M is poised for turnaround in revenue growth trajectory post Change in Estimates | Target | Reco three years of tepid performance led by a) Turnaround in Telecom vertical b) expansion in portfolio in Enterprise vertical through acquisitions which has...

Guidance Suggests Low FY20 Revenue Acceleration: Room To Invest Exists We attended Tech Mahindra's (TML) Analyst Day recently and have the following key takeaways: (1) TML insists that there has been no margin growth trade-off in recent quarters when margins have surprised positively while revenue growth has been sub-par. (2) Hinted at fairly large margin levers left for it in FY20 and beyond in the form of: (a) Automation - where it can go wider and deeper into its customer base. Currently used in only 100 customers. (b) Yield management where it would focus/defocus on specific revenue streams. It currently has one of the lowest revenue per employee numbers among its peers. (c) Gains from synergies with its portfolio companies where it indicated that only 50% of the potential has...