Tech Mahindra posted Q4FY21 income progress of 1.6% q-o-q (USD) and 0.7% (CC) to $1,330 mn, decrease than our and Road’s estimates of 1.5% (USD) and 1.9% (cc), respectively. Ebit margin expanded 60bps q-o-q to 16.5%, surpassing our and Road’s estimates of 16% and 15.8%, respectively. Revenue declined 18.5% q-o-q to Rs 10,814 mn vis-à-vis our estimate of Rs 12,179 mn. New deal wins through the quarter had been at $1,043 mn, up 129% q-o-q.
We anticipate the deal momentum to remain sturdy over coming quarters led by the manufacturing and BFSI segments. For FY22, administration expects to ship double-digit income progress and 15%-plus Ebit margin. All in all, we preserve Purchase with an unchanged TP of Rs 1,450 (25x Q2FY23e).
Structural shift in direction of digital: All verticals (besides Retail, Transport & Logistics) grew q-o-q in Q4FY21. BFSI, Manufacturing and Communications grew the strongest, up 4.9%, 1.9% and 1.4% q-o-q, respectively. Know-how, Media & Leisure remained flat. By area, Europe and ROW posted wholesome progress of two% q-o-q and 6.2% q-o-q, respectively, whereas Americas slid 1.3% q-o-q. Internet new deal-wins had been divided equally between enterprise and communication, and unfold throughout US and EU.
Working margin was sturdy: Ebitda margin, up 40bps q-o-q to twenty%, is its highest in six years, and elevated on the again of operational efficiencies, supply transformation, extra offshoring and better utilisation, which had been solely partially offset by the rise in SG&A (because of hiring). FCF stood at $187 mn in Q4FY21; FCF to PAT stood at 127%. Sturdy money move benefitted from decrease DSO, which decreased by three days to 92. Utilisation at 87% is powerful and, therefore, more likely to average going forward. Tax provision is increased because of one-offs at two subsidiaries, which affected PAT.
Outlook: Upcycle to maintain – TECHM has a robust deal pipeline for FY22, primarily pushed by transformational offers and its shut involvement with the 4 hyperscalers. Administration is focussing on buyer transformation offers. The inventory is buying and selling at 17.4x FY22e PE. All in all, we preserve ‘BUY/SN’.