TechM’s revenues grew 0.6% QoQ at US$1.1bn lower than our estimates of (2.3% qoq growth). This translates into flat-to-negative organic growth for the quarter as it would have consolidated HCI revenues in Q1 results. However, profitability improved 70bps qoq led by strong cost cutting actions during the quarter as it saw decline in Employee cost by 3.6% sequentially with total headcount cut of 1,713 to 115,980 associates. Other income grew by 73% qoq at Rs4.1bn led by higher forex gains supporting the PAT beat. Reported PAT grew by 36% qoq (6.5% yoy basis) at Rs 7.9bn well ahead of our estimates of Rs 6.4bn. Even though that the operational performance is better than estimates, Management commentary on prospects of Enterprise segment and recovery in LCC business would be crucial for its performance in the near term.
We currently have an ACCUMULATE rating with TP of Rs 470 on the stock and may review our estimates post the earnings call (today at 6:30pm – 022 3960 0613)
Jun’17 quarter results
- Tech M has reported 0.6% QoQ US$ revenue growth to US$ 1,138 mn (+0.6% QoQ in US$ terms – CC terms growth would be flat-to-negative) lower than our expectations of 2.3% QoQ US$ revenue growth.
- EBIDTA grew 4% qoq ahead of our estimate as EBIDTA Margins improved 70bps qoq at 12.7% ahead of our estimates of 20bps improvement. The operating margins improvement was crucial as it has guided for flat profitability for FY18 and further positive commentary on this could boost up the sentiments as street is building pessimism on outlook (Our estimate is 14.2% EBIDTA Margins for FY18).
- Profits at Rs 7.98bn (36% QoQ, 6.5% YoY) were well ahead of our estimate of Rs6.4bn led by better operating profitability and strong other income.
Other highlights
- Headcount: 1, 15,980, down 1,713people QoQ with IT Services headcount decline of 3,407 people QoQ.
- Top 5/10 clients: US$ revenues from top 5 clients declined by 2% QoQ while revenues from top 10 clients declined by 2.9% QoQ.
- North America leads amongst the geographies in terms of growth with a 4.4% QoQ growth with Europe (+1.3% QoQ). Revenues from RoW declined by 6.9% QoQ.
- US$ revenues from Communication vertical declined by 1.8% QoQ. Enterprise Business reported a 2.7% QoQ US$ revenue growth led by strong performance in Retail, transport & logistics (5.3% QoQ) and Financial Services (2.8% QoQ).
- Attrition (including trainees) was flat sequentially at 77%.
Jun’17 quarter results summary:
|
In Rs mn
|
Q1FY18E
|
Q4FY17
|
QoQ(%)
|
Q1FY17
|
YoY (%)
|
Q1FY18E
|
|
Revenues(US$ mn)
|
1,138
|
1131
|
0.6
|
1032
|
10.3
|
1,168
|
|
Net sales
|
73,360
|
74,950
|
-2.1
|
69,209
|
6.0
|
75,354
|
|
Total Income
|
73,360
|
74,950
|
69,209
|
75,354
|
||
|
Operating expenses
|
64014
|
65963
|
58919
|
66137
|
||
|
EBITDA
|
9,346
|
8,987
|
4.0
|
10,290
|
-9.2
|
9,216
|
|
Margins (%)
|
12.7
|
12.0
|
70
|
14.9
|
-210.0
|
12.2
|
|
Depreciation
|
2468
|
2835
|
2019
|
2637
|
||
|
EBIT
|
6,878
|
6,152
|
11.8
|
8,271
|
-16.8
|
6,579
|
|
Margins (%)
|
9.4
|
8.2
|
120
|
12.0
|
-260.0
|
8.7
|
|
Interest
|
-370
|
-318
|
-274
|
523
|
||
|
Other income
|
4106
|
2379
|
2458
|
1352
|
||
|
Pre-tax profit
|
10,614
|
8,849
|
19.9
|
11,003
|
-3.5
|
8,454
|
|
Tax provided
|
2698
|
2316
|
2468
|
2113
|
||
|
Profit after tax
|
7,916
|
6,533
|
21.2
|
8,535
|
-7.3
|
6,340
|
|
MI
|
69
|
-17
|
-464
|
0
|
||
|
Reported Profit After tax
|
7,986
|
5,880
|
35.8
|
7,500
|
6.5
|
6,340
|
|
Emkay Net Profit
|
7,986
|
5,880
|
35.8
|
7,500
|
6.5
|
6,340
|
|
EPS, Rs
|
9.0
|
6.6
|
|
8.4
|
6.4
|
7.1
|