Tech Mahindra revenue surged on 20.1% in 2015 while EBITDA Margin decreased on 3.9 pp from 22.2% to 18.4%

26-05-2015 • About Tech Mahindra ($TECHM) • By InTwits

Tech Mahindra reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

Tech Mahindra has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.2%. At the same time it's in pair with industry average of 3.6%.
CAPEX is quite volatile: 11,231 in FY2015, 9,397 in FY2014, 1,787 in FY2013, 2,958 in FY2012, 1,534 in FY2011
The company has highly profitable business model: ROIC is at 29.7%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Tech Mahindra ($TECHM) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	51,402	54,897	68,731	188,314	226,213	20.1%
EBITDA	10,033	9,194	14,242	41,838	41,529	-0.7%
Net Income	6,442	10,955	12,878	30,288	26,277	-13.2%
Balance Sheet
Cash	2,665	2,418	5,358	33,149	24,049	-27.5%
Short Term Debt	5,827	5,266	10,804	3,441	6,541	90.1%
Long Term Debt	6,400	6,000	3,000	190	460	142.1%
Cash flow
Capex	1,534	2,958	1,787	9,397	11,231	19.5%
Ratios
Revenue growth	-85.8%	6.8%	25.2%	174.0%	20.1%
EBITDA growth	-11.4%	-8.4%	54.9%	193.8%	-0.7%
EBITDA Margin	19.5%	16.7%	20.7%	22.2%	18.4%	-3.9%
Net Income Margin	12.5%	20.0%	18.7%	16.1%	11.6%	-4.5%
CAPEX, % of revenue	3.0%	5.4%	2.6%	5.0%	5.0%	-0.0%
ROIC	19.2%	15.4%	20.1%	43.0%	29.7%	-13.3%
ROE	20.7%	29.6%	27.2%	41.5%	24.5%	-16.9%
Net Debt/EBITDA	1.0x	1.0x	0.6x	-0.7x	-0.4x	0.3x

Revenue and profitability

Tech Mahindra's Revenue jumped on 20.1% in FY2015. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased slightly on 1.1 pp from 1.1% to -0% in FY2015.

Net Income marign decreased on 4.5 pp from 16.1% to 11.6% in FY2015.

Capital expenditures (CAPEX) and working capital investments

In FY2015 Tech Mahindra had CAPEX/Revenue of 5.0%. CAPEX/Revenue showed almost no change from FY2012 to FY2015. It's average level of CAPEX/Revenue for the last three years was 4.2%.

Return on investment

The company operates at high and attractive ROIC (29.69%) and ROE (24.52%). ROIC dropped on 13.3 pp from 43.0% to 29.7% in FY2015. ROE dropped on 16.9 pp from 41.5% to 24.5% in FY2015.

Leverage (Debt)

Debt level is -0.4x Net Debt / EBITDA and 0.2x Debt / EBITDA. Net Debt / EBITDA surged on 0.3x from -0.7x to -0.4x in FY2015. Debt jumped on 92.8% in FY2015 while cash dropped on 27.5% in FY2015.

Management team

Tech Mahindra's CEO is Chander Prakash Gurnani. Chander Prakash Gurnani has 6 years tenure at the company. The company's CFO Milind Kulkarni has spent 5 years at the company.

Appendix 1: 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	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)		31.0%	28.8%	29.9%	15.7%
Mindtree ($MINDTREE)		26.6%	23.2%	28.8%	17.0%
Infinite Computer Solutions (India) ($INFINITE)		19.5%	31.7%	24.6%	0.3%
Infosys ($INFY)		22.7%	19.6%	24.2%	6.4%
Sqs India Bfsi ($SQSBFSI)		46.4%	32.9%	20.4%	10.1%
Median (21 companies)	37.5%	22.9%	20.4%	14.0%	9.1%
Tech Mahindra ($TECHM)		6.8%	25.2%	174.0%	20.1%

Top companies by Gross margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)				47.4%	42.4%
Infosys ($INFY)	45.3%	41.3%	98.1%	35.9%	38.3%
Mindtree ($MINDTREE)	32.8%	31.5%	36.2%		34.8%
Wipro ($WIPRO)	31.5%	29.2%	30.4%	32.0%	31.6%
Median (4 companies)	34.7%	32.7%	36.2%	35.9%	36.6%

Top companies by EBITDA margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Oracle Financial Services Software ($OFSS)	37.4%	35.3%	35.2%	37.4%	39.7%
Infosys ($INFY)	32.5%	31.6%	27.9%	26.3%	27.1%
Tata Consultancy Services ($TCS)	29.9%	29.5%	28.6%	30.7%	26.1%
Wipro ($WIPRO)	21.1%	19.1%	20.9%	22.4%	22.3%
Mindtree ($MINDTREE)	11.8%	15.1%	19.8%	20.6%	20.3%
Median (19 companies)	18.0%	15.1%	16.5%	18.3%	14.7%
Tech Mahindra ($TECHM)	19.5%	16.7%	20.7%	22.2%	18.4%

Top companies by CAPEX/Revenue, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ramco Systems ($RAMCOSYS)	16.4%		22.1%	15.3%	12.4%
Niit Technologies ($NIITTECH)	4.1%	5.9%	4.6%	6.1%	7.9%
Financial Technologies (India) ($FINANTECH)	64.7%	8.6%	11.2%		6.5%
Mindtree ($MINDTREE)	5.6%	2.5%	4.5%	5.0%	5.6%
Geometric ($GEOMETRIC)	3.8%	3.5%	4.2%	4.0%	4.3%
Median (17 companies)	4.2%	3.7%	3.5%	2.6%	3.1%
Tech Mahindra ($TECHM)	3.0%	5.4%	2.6%	5.0%	5.0%

Top companies by ROIC, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)	47.1%	48.6%	48.4%	50.2%	40.5%
Geometric ($GEOMETRIC)	19.6%	29.9%	46.4%	41.1%	20.6%
Mindtree ($MINDTREE)	14.9%	24.9%	34.6%	36.2%	32.0%
Cmc ($CMC)	31.5%	26.2%	33.2%	35.3%	26.0%
Hexaware Technologies ($HEXAWARE)	23.8%	33.5%	39.2%	34.7%
Median (30 companies)	16.0%	19.6%	21.4%	22.9%	19.4%
Tech Mahindra ($TECHM)	19.2%	15.4%	20.1%	43.0%	29.7%

Top companies by Net Debt / EBITDA


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
3I Infotech ($3IINFOTECH)	3.5x	8.5x	20.3x	27.7x
Ramco Systems ($RAMCOSYS)	4.0x	8.8x		27.6x	4.2x
Starcom Information Technology ($STARCOM)				17.4x
Onward Technologies ($ONWARDTEC)	2.7x	2.4x	2.2x	4.1x	1.9x
Kpit Technologies ($KPIT)	-0.7x	0.3x	0.5x	0.7x	0.4x
Median (23 companies)	-0.2x	-0.1x	-0.2x	-0.2x	-0.4x
Tech Mahindra ($TECHM)	1.0x	1.0x	0.6x	-0.7x	-0.4x

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.