Tech Mahindra at 6½-year high as Q2 beats analyst forecast

The stock has rallied 6% to Rs 1,675 on the Bombay Stock Exchange.

Tech Mahindra has rallied 6% at Rs 1,675, its highest level since May 2007 on BSE, after reporting 4.7% quarter-on-quarter (qoq) growth in the dollar revenues to US$ 758 million for the quarter ended September 30, 2013. Analyst expected revenue to drop around 3% for the quarter.

In Indian Rupee (INR) terms, revenues came in at Rs 4,772 crore, up 16% qoq. The EBITDA margin of the company grew by around 220bp qoq to 23.3%, largely aided by gains due to INR depreciation.

Profit grew by just 4% qoq to Rs 718 crore as the operational gains of the company got partially absorbed due to lower other income of Rs 38 crore against Rs 207 crore in June 2013 quarter.

Management indicated that the company is witnessing pick up in discretionary spending and a strong deal pipeline in IMS, where Tech Mahindra is actively gaining market share through renewal deal wins, says analyst at Angel Broking in a note.

Meanwhile, MSCI has included Tech Mahindra in the MSCI India Index.

"Tech Mahindra surprised on revenues, with 4.7% q-q growth in 2Q led by a strong performance in the Enterprise business. Growth outlook has clearly improved, in our view. Our revenues estimates are up by 2-3% for FY14/15F, while margins are unchanged. We look for USD revenue CAGR of 14% and an EPS CAGR of 19% over FY13-15F. Our target price of Rs 1,750 is based on 12.5x one-year roll forward (vs. 12x earlier). Maintain buy rating," said Ashwin Mehta and Pinku Pappan of Nomura Research.