Looking for growth? Don't miss Tech Mahindra with its track record of fast growth

21-05-2014 • About Tech Mahindra ($TECHM) • By InTwits

Tech Mahindra is a fast-growing stock in IT Consulting & Software industry. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.

Growth story

Tech Mahindra showed growth in the last financial year. The company's revenue surged on 174% in FY2014. EBITDA also increased considerably: 194% for the same period.

In the last 3 years the company showed fast revenue growth of 54.2% from FY2011 to FY2014 annually. EBITDA surged on 61.0% from FY2011 to FY2014 annually.

Tech Mahindra ($TECHM) financials for the last 5 years

mln. INR	FY2010	FY2011	FY2012	FY2013	FY2014
Revenue	361,594	51,402	54,897	68,731	188,314
Revenue growth, %		-85.8%	6.8%	25.2%	174.0%
SG&A, %
EBITDA	11,326	10,033	9,194	14,242	41,838
EBITDA growth, %		-11.4%	-8.4%	54.9%	193.8%
EBITDA margin, %	3.13%	19.5%	16.7%	20.7%	22.2%
Net Income	7,005	6,442	10,955	12,878	30,288
Net Income margin, %	1.94%	12.5%	20.0%	18.7%	16.1%

CAPEX	4,108	1,534	2,958	1,787	9,397
CAPEX/Revenue, %	1.14%	2.98%	5.39%	2.60%	4.99%
Debt	13,672	12,227	11,266	13,804	3,631
Cash	2,187	2,665	2,418	5,358	33,149
Net Debt/EBITDA	1.0x	1.0x	1.0x	0.6x	-0.7x

ROIC, %	31.4%	19.2%	15.4%	20.1%	43.0%
ROE, %	29.0%	20.7%	29.6%	27.2%	41.5%

Profitability and return on investment

EBITDA growth was supported by margin expansion. EBITDA margin increased on 1.50 pp from 20.7% to 22.2% in FY2014. If we look for the longer period the company showed fast EBITDA margin growth of 2.70 pp from 19.5% in FY2011 to 22.2% in FY2014.

We call Tech Mahindra an attractive growth stock as together with the growth it delivers high ROIC at 43.0%. Three years ago it was considerably lower at 19.2%. Average ROIC for the last three years was 26.2%.

Tech Mahindra showed big decline in Net Income margin of 2.60 pp from 18.7% to 16.1% in FY2014. If we look for the longer period Tech Mahindra's Net Income margin surged on 3.60 pp from 12.5% in FY2011 to 16.1% in FY2014.

Tech Mahindra operates at ROE of 41.5%. It's average ROE for the last three years was 32.7%.

Capital expenditures (CAPEX)

The company's CAPEX/Revenue was 4.99% in FY2014. Tech Mahindra showed fast CAPEX/Revenue growth of 2.01 pp from 2.98% in FY2011 to 4.99% in FY2014. For the last three years the average CAPEX/Revenue was 4.33%.

Leverage (Debt)

Having such a fast growth profile Tech Mahindra keeps negative net debt at -0.7x Net Debt/EBITDA. If we look for the longer period Tech Mahindra showed big decline in leverage of 1.66x from 0.95x in FY2011 to -0.71x in FY2014.

Management team

Chander Prakash Gurnani is a CEO of Tech Mahindra and Milind Kulkarni is a CFO.

Peers in IT Consulting & Software

Below you can find Tech Mahindra benchmarking vs. other companies in IT Consulting & Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top 5
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)		24.3%	31.0%	28.8%	29.9%
Mindtree ($MINDTREE)		-65.0%	26.6%	23.2%	28.8%
Infosys ($INFY)		20.9%	22.7%	19.6%	24.2%
Sqs India Bfsi ($SQSBFSI)		-66.5%	46.4%	32.9%	20.4%
Kpit Technologies ($KPIT)		-71.0%	52.0%	49.2%	20.3%

Median (13 companies)		-56.9%	30.2%	23.2%	16.0%
Tech Mahindra ($TECHM)		-85.8%	6.8%	25.2%	174.0%

Top companies by Gross margin, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)					47.4%
Infosys ($INFY)	42.7%	45.3%	41.3%	98.1%	35.9%
Wipro ($WIPRO)	31.8%	31.5%	29.2%	30.4%	32.0%

Median (3 companies)	42.7%	34.7%	32.7%	36.2%	35.9%

Top companies by EBITDA margin, %

Top 5
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)	29.0%	29.9%	29.5%	28.6%	30.7%
Infosys ($INFY)	34.4%	32.5%	31.6%	27.9%	26.3%
Wipro ($WIPRO)	8.3%	21.1%	19.1%	20.9%	22.4%
Mindtree ($MINDTREE)	5.8%	11.8%	15.1%	19.8%	20.6%
Sqs India Bfsi ($SQSBFSI)	3.9%	3.4%	10.6%	18.8%	20.5%

Median (12 companies)	6.6%	18.3%	15.1%	18.3%	18.6%
Tech Mahindra ($TECHM)	3.1%	19.5%	16.7%	20.7%	22.2%

Top companies by CAPEX/Revenue, %

Top 5
	FY2010	FY2011	FY2012	FY2013	FY2014
Niit Technologies ($NIITTECH)	1.7%	4.1%	5.9%	4.6%	6.1%
Infosys ($INFY)	3.7%	4.7%	4.9%	5.2%	5.5%
Mindtree ($MINDTREE)	1.1%	5.6%	2.5%	4.5%	5.0%
Geometric ($GEOMETRIC)	1.7%	3.8%	3.5%	4.2%	4.0%
Cmc ($CMC)	0.9%	9.2%	8.1%	4.4%	4.0%

Median (12 companies)	1.5%	4.3%	3.9%	4.2%	3.6%
Tech Mahindra ($TECHM)	1.1%	3.0%	5.4%	2.6%	5.0%

Top companies by ROIC, %

Top 5
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)	44.7%	47.1%	48.6%	48.4%	50.2%
Geometric ($GEOMETRIC)	25.4%	19.6%	29.9%	46.4%	41.1%
Mindtree ($MINDTREE)	26.4%	14.9%	24.9%	34.6%	36.2%
Cmc ($CMC)	32.0%	31.5%	26.2%	33.2%	35.3%
Sqs India Bfsi ($SQSBFSI)	14.0%	0.1%	12.1%	27.0%	29.4%

Median (13 companies)	25.4%	19.8%	24.9%	26.9%	25.6%
Tech Mahindra ($TECHM)	31.4%	19.2%	15.4%	20.1%	43.0%

Top companies by Net Debt / EBITDA

Top 5
	FY2010	FY2011	FY2012	FY2013	FY2014
3I Infotech ($3IINFOTECH)	4.1x	3.5x	8.5x	20.3x	27.7x
Kpit Technologies ($KPIT)	0.2x	-0.7x	0.3x	0.5x	0.7x
Mindtree ($MINDTREE)	-0.1x	-0.1x	-0.0x	-0.2x	-0.2x
Geometric ($GEOMETRIC)	0.1x	-0.0x	0.1x	-0.0x	-0.2x
Cmc ($CMC)	-0.1x	-0.2x	-0.2x	-0.4x	-0.3x

Median (12 companies)	-0.1x	-0.2x	-0.3x	-0.4x	-0.6x
Tech Mahindra ($TECHM)	1.0x	1.0x	1.0x	0.6x	-0.7x

Tech Mahindra stock price chart

Tech Mahindra financials

mln.	FY2010	FY2011	FY2012

Revenue	361,594	51,402	54,897
EBITDA	11,326	10,033	9,194
Net income	7,005	6,442	10,955
CAPEX	4,108	1,534	2,958
Debt	13,672	12,227	11,266
Cash	2,187	2,665	2,418

About Tech Mahindra

Tech Mahindra Limited provides information technology services and solutions in India, the Americas, Europe, and internationally. The company offers telecom services, consulting, application outsourcing, infrastructure outsourcing, engineering services, BPO, platform solutions, and mobile value added services. It provides communication services to telecom service providers, telecom equipment manufacturers, and independent software vendors; consulting services, including business process management and business value enhancement services; content, process, and user experience management services in the areas of customer relationship management, operations improvement, and employee productivity; enterprise architecture services; and enterprise business solutions, including enterprise resource planning, business intelligence, and performance management, as well as infrastructure management services. In addition, the company offers network lifecycle services; supply chain management services; integrated engineering services, such as digital convergence solutions; and mobility solutions. Further, it provides performance engineering services; product life cycle management solutions; and information security services, including consulting, system integration, security testing, and security operations, as well as testing services. Additionally, the company offers new generation services, such as big data, cloud computing, content delivery network, and device testing and certification services; digital enterprise solutions; green and sustainability solutions; and smart grids. It serves various industries, including telecom, healthcare and pharmaceuticals, banking and financial services, retail, and hi-tech. Tech Mahindra Limited was founded in 1986 and is based in Pune, India. Tech Mahindra Limited is a subsidiary of Mahindra & Mahindra Ltd.