Tech Mahindra Net Income surged on 18.7% and Revenue surged on 17.1%

24-05-2016 • About Tech Mahindra ($TECHM) • By InTwits

Tech Mahindra reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Tech Mahindra is a fast growth stock: FY2016 revenue growth was 17.1%, 5 year revenue CAGR was 38.8% at FY2016 ROIC 23.6%
Tech Mahindra has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.3%. At the same time it's a lot of higher than industry average of 3.1%.
CAPEX is quite volatile: ₹9,192m in FY2016, ₹11,231m in FY2015, ₹9,397m in FY2014, ₹1,787m in FY2013, ₹2,958m in FY2012
The company has highly profitable business model: ROIC is 23.6%

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

Revenue and profitability

Tech Mahindra's Revenue surged on 17.1%. During FY2012-FY2016 Revenue growth topped in FY2014 at 174% and was decelerating since that time. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased on 2.1 pp from 18.4% to 16.3% in FY2016. During the last 5 years EBITDA Margin topped in FY2014 at 22.2% and was declining since that time.

Net Income margin showed almost no change in FY2016. Net Income margin followed a declining trend at -2.3 pp per annum in the last 5 years.

Investments (CAPEX, working capital and M&A)

In FY2016 Tech Mahindra had CAPEX/Revenue of 3.5%. Tech Mahindra showed small growth in CAPEX/Revenue of 0.87 pp from 2.6% in FY2013 to 3.5% in FY2016. Average CAPEX/Revenue for the last three years was 4.5%.

Return on investment

The company operates at high and attractive ROIC (23.6%) and ROE (23.4%). ROIC decreased on 6.0 pp from 29.7% to 23.6% in FY2016. ROE decreased slightly on 1.1 pp from 24.5% to 23.4% in FY2016. During FY2012-FY2016 ROIC topped in FY2014 at 43.0% and was declining since that time.

Leverage (Debt)

Company's Net Debt / EBITDA is -0.7x and Debt / EBITDA is 0.3x. Debt surged on 56.0% while cash jumped on 66.9%.

Tech Mahindra has no short term refinancing risk: cash is higher than short term debt (448.3%).

Management team

Chander Prakash Gurnani is a the company's CEO. Chander Prakash Gurnani has spent 8 years with the company. Milind Kulkarni is a the company's CFO. Milind Kulkarni has spent 7 years at the company.

Financial and operational results

Tech Mahindra ($TECHM) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	54,897	68,731	188,314	226,213	264,942	17.1%
EBITDA	9,194	14,242	41,838	41,529	43,184	4.0%
Net Income	10,955	12,878	30,288	26,277	31,180	18.7%
Balance Sheet
Cash	2,418	5,358	33,149	24,049	40,138	66.9%
Short Term Debt	5,266	10,804	3,441	6,541	8,953	36.9%
Long Term Debt	6,000	3,000	190	460	1,967	327.6%
Cash flow
Capex	2,958	1,787	9,397	11,231	9,192	-18.2%
Ratios
Revenue growth	6.8%	25.2%	174.0%	20.1%	17.1%
EBITDA growth	-8.4%	54.9%	193.8%	-0.7%	4.0%

EBITDA Margin	16.7%	20.7%	22.2%	18.4%	16.3%	-2.1%
Net Income Margin	20.0%	18.7%	16.1%	11.6%	11.8%	0.2%
CAPEX, % of revenue	5.4%	2.6%	5.0%	5.0%	3.5%	-1.5%

ROIC	15.4%	20.1%	43.0%	29.7%	23.6%	-6.0%
ROE	29.6%	27.2%	41.5%	24.5%	23.4%	-1.1%
Net Debt/EBITDA	1.0x	0.6x	-0.7x	-0.4x	-0.7x	-0.3x

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	FY2012	FY2013	FY2014	FY2015	FY2016
Ramco Systems ($RAMCOSYS)	-	7.3%	9.9%	37.0%	24.2%
Cyient ($CYIENT)	-	20.6%	17.8%	24.0%	13.1%
Empower India ($EMPOWER)	-3.7%	-13.2%	-32.6%	23.9%	-
Hexaware Technologies ($HEXAWARE)	34.3%	17.3%	13.0%	21.0%	-
Mindtree ($MINDTREE)	-	23.2%	28.8%	17.0%	31.8%
Median (23 companies)	5.1%	20.0%	13.0%	8.1%	12.9%
Tech Mahindra ($TECHM)	-	25.2%	174.0%	20.1%	17.1%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Tata Consultancy Services ($TCS)	-	-	47.4%	42.4%	43.9%
Infosys ($INFY)	41.3%	98.1%	35.9%	38.3%	37.4%
Mindtree ($MINDTREE)	31.5%	36.2%	-	34.8%	32.4%
Wipro ($WIPRO)	29.2%	30.4%	32.0%	31.6%	30.4%
Median (4 companies)	32.7%	36.2%	35.9%	36.6%	34.9%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Oracle Financial Services Software ($OFSS)	35.3%	35.2%	37.4%	39.7%	41.1%
Infosys ($INFY)	31.6%	27.9%	26.3%	27.1%	27.1%
Tata Consultancy Services ($TCS)	29.5%	28.6%	30.7%	26.1%	28.2%
Wipro ($WIPRO)	19.1%	20.9%	22.4%	22.3%	21.1%
Mindtree ($MINDTREE)	15.1%	19.8%	20.6%	20.3%	17.7%
Median (26 companies)	14.8%	16.5%	18.0%	12.3%	14.0%
Tech Mahindra ($TECHM)	16.7%	20.7%	22.2%	18.4%	16.3%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ramco Systems ($RAMCOSYS)	-	22.1%	15.3%	12.4%	10.3%
Niit Technologies ($NIITTECH)	5.9%	4.6%	6.1%	7.9%	6.0%
Financial Technologies (India) ($FINANTECH)	8.9%	11.4%	-	6.5%	5.4%
Mindtree ($MINDTREE)	2.5%	4.5%	5.0%	5.6%	3.4%
Hexaware Technologies ($HEXAWARE)	3.8%	1.8%	2.3%	4.4%	-
Median (21 companies)	3.7%	3.2%	2.7%	3.0%	2.9%
Tech Mahindra ($TECHM)	5.4%	2.6%	5.0%	5.0%	3.5%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Tata Consultancy Services ($TCS)	48.6%	48.4%	50.2%	40.5%	44.4%
Hexaware Technologies ($HEXAWARE)	33.5%	39.2%	34.7%	35.7%	-
Mindtree ($MINDTREE)	24.9%	34.6%	36.2%	32.0%	28.9%
Sqs India Bfsi ($SQSBFSI)	12.1%	27.0%	29.4%	30.6%	39.9%
Cmc ($CMC)	26.2%	33.2%	35.3%	26.0%	-
Median (31 companies)	19.6%	20.7%	22.3%	19.4%	18.9%
Tech Mahindra ($TECHM)	15.4%	20.1%	43.0%	29.7%	23.6%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
3I Infotech ($3IINFOTECH)	8.5x	20.3x	27.7x	14.7x	-
Agc Networks ($AGCNET)	0.9x	10.1x	-	4.6x	22.8x
Ramco Systems ($RAMCOSYS)	8.8x	-	27.6x	4.2x	-0.1x
Onward Technologies ($ONWARDTEC)	2.4x	2.2x	4.1x	1.9x	1.2x
Kpit Technologies ($KPIT)	0.3x	0.5x	0.7x	0.4x	-0.3x
Median (24 companies)	-0.0x	-0.2x	-0.2x	-0.2x	-0.2x
Tech Mahindra ($TECHM)	1.0x	0.6x	-0.7x	-0.4x	-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.