TechM’s revenues grew 2.5% QoQ at US$1.2bn ahead of our estimates of (1% QoQ growth). Profitability improved 180bps QoQ led by strong cost cutting actions during the quarter as it continue to see headcount cut of 1,854 employees YoY basis to 115,241 associates. OPM at 12.8% are at eight quarter high level and thus further commentary here would be crucial. Reported PAT grew by 12.8% QoQ (10.2% YoY basis) at Rs 9.4bn well ahead of our estimates of Rs 7.8bn – driven strong operating performance and lower ETR at 21.8% for the quarter (ETR at 25.4% in FY17).
9MFY18 operating profits are up 0.6% despite revenue growth of about 9.5% in the same period. Management in the beginning of the year guided for flat profit growth for FY18 despite strong revenue growth which has been the case so far. We believe the commentary on organic growth and corresponding profitability would be crucial factor to watch out for.Even though that the operational performance is better than estimates, Management commentary on prospects of both in the Telecom business (Telecom revenues flat for the quarter, down 0.5% for 9MFY18) going forward would be crucial for its overall organic performance in the near term.
We currently have a REDUCE rating with TP of Rs 460 on the stock and may review our estimates post the earnings call (today at6:30pm – 022 3960 0613
Dec’17 quarter results
- Tech M has reported 2.5% QoQ US$ revenue growth to US$ 1.2 bn (+2.5% QoQ and 8.3% YoY in US$ terms) well ahead of our expectations of 1% QoQ US$ revenue growth.
- EBIT grew by 14% QoQ well ahead of our estimate as EBIT Margins improved 180bps QoQ at 12.7% ahead of our estimates (we expected flat profitability in the quarter).
- Profits at Rs 9.4bn (12.8% QoQ, 10.2% YoY) were well ahead of our estimate of Rs7.8bn led by better operating profitability and lower ETR.
Other highlights
- Headcount: 1, 15,241, down 1,984 people QoQ.
- Top 5/10 clients: US$ revenues from top 5 clients declined by 8.2% QoQ while revenues from top 10 clients declined by 6.2% QoQ.
- North America leads amongst the geographies in terms of growth with a 6.2% QoQ growth with Europe (+1.9% QoQ). Revenues from RoW declined by 3.3% QoQ.
- US$ revenues from Communication vertical up by 0.4% QoQ. Enterprise Business reported a 4.2% QoQ US$ revenue growth led by strong performance in Others segment.
- Attrition (including trainees) increased 100bps sequentially to 17%.
Dec’17 quarter results summary:
|
In Rs mn
|
Q3FY18E
|
Q2FY18
|
QoQ(%)
|
Q3FY17
|
YoY (%)
|
Q3FY18E
|
|
Revenues(US$ mn)
|
1,209
|
1,179
|
2.5
|
1116
|
8.3
|
1,190
|
|
Net sales
|
77,760
|
76,064
|
2.2
|
75,575
|
2.9
|
76,767
|
|
Total Income
|
77,760
|
76,064
|
75,575
|
76,767
|
||
|
Operating expenses
|
65113
|
65007
|
63710
|
65636
|
||
|
EBITDA
|
12,647
|
11,057
|
14.4
|
11,865
|
6.6
|
11,131
|
|
Margins (%)
|
16.3
|
14.5
|
170
|
15.7
|
60.0
|
14.5
|
|
Depreciation
|
2742
|
2653
|
2480
|
2648
|
||
|
EBIT
|
9,905
|
8,404
|
17.9
|
9,385
|
5.5
|
8,483
|
|
Margins (%)
|
12.7
|
11.0
|
170
|
12.4
|
30.0
|
11.1
|
|
Interest
|
-341
|
-386
|
-349
|
-313
|
||
|
Other income
|
2251
|
3223
|
-30.2%
|
1552
|
2326
|
|
|
Pre-tax profit
|
11,815
|
11,241
|
5.1
|
11,286
|
4.7
|
10,496
|
|
Tax provided
|
2570
|
2847
|
2141
|
2676
|
||
|
Profit after tax
|
9,245
|
8,394
|
10.1
|
9,145
|
1.1
|
7,819
|
|
MI
|
187
|
-31
|
111
|
0
|
||
|
Reported Profit After tax
|
9,432
|
8,363
|
12.8
|
8,560
|
10.2
|
7,819
|
|
EPS, Rs
|
10.6
|
9.4
|
|
9.6
|
10.2
|
8.8
|
Source: Company, Emkay Research