Looking for growth stocks? Pay attention to Tech Mahindra

02-06-2015 • About Tech Mahindra ($TECHM) • By InTwits

Tech Mahindra is a growth 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 fast growth in the last financial year. The company's revenue surged on 20.1% in FY2015. The growth also happened in EBITDA of -0.739% for the same period.

If we look for the longer period Tech Mahindra showed fast revenue growth of 60.3% from FY2012 to FY2015 annually. EBITDA surged on 65.3% from FY2012 to FY2015 annually.

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

mln. INR	FY2011	FY2012	FY2013	FY2014	FY2015
Revenue	51,402	54,897	68,731	188,314	226,213
Revenue growth, %		6.8%	25.2%	174.0%	20.1%
SG&A, %
EBITDA	10,033	9,194	14,242	41,838	41,529
EBITDA growth, %		-8.4%	54.9%	193.8%	-0.7%
EBITDA margin, %	19.5%	16.7%	20.7%	22.2%	18.4%
Net Income	6,442	10,955	12,878	30,288	26,277
Net Income margin, %	12.5%	20.0%	18.7%	16.1%	11.6%

CAPEX	1,534	2,958	1,787	9,397	11,231
CAPEX/Revenue, %	2.98%	5.39%	2.60%	4.99%	4.96%
Debt	12,227	11,266	13,804	3,631	7,001
Cash	2,665	2,418	5,358	33,149	24,049
Net Debt/EBITDA	1.0x	1.0x	0.6x	-0.7x	-0.4x

ROIC, %	19.2%	15.4%	20.1%	43.0%	29.7%
ROE, %	20.7%	29.6%	27.2%	41.5%	24.5%

Profitability and return on investment

EBITDA growth was partly attributed to margin expansion. In the longer period Tech Mahindra showed fast EBITDA margin growth of 1.70 pp from 16.7% in FY2012 to 18.4% in FY2015.

We call Tech Mahindra an attractive growth stock as together with the growth it delivers high ROIC at 29.7%. During the last three years it surged - it was 15.4% in FY2012. For the last three years the average ROIC was 30.9%.

The company showed big decline in Net Income margin of 4.50 pp from 16.1% to 11.6% in FY2015. If we look for the longer period Net Income margin dropped on 8.40 pp from 20% in FY2012 to 11.6% in FY2015.

Tech Mahindra operates at ROE of 24.5%. It's average ROE for the last three years was 31.1%.

Capital expenditures (CAPEX)

In FY2015 Tech Mahindra had CAPEX/Revenue of 4.96%. Tech Mahindra showed decline of 0.423 pp from 5.39% in FY2012 to 4.96% in FY2015. Average CAPEX/Revenue for the last three years was 4.18%.

Leverage (Debt)

Tech Mahindra has negative net debt at -0.4x Net Debt/EBITDA - at the same time with high growth. If we look for the longer period leverage dropped on 1.37x from 0.96x in FY2012 to -0.41x in FY2015.

Management team

Chander Prakash Gurnani runs Tech Mahindra as a CEO 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
	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.