TechM likely to see 3% growth in sales MUMBAI: Tech Mahindra is expected to post about 3% sequential growth in sales during the July-September period aided by revenues from Satyam, the 2009 acquisition that closed during the quarter. Analysts are, however, looking for clear signs of the companys ability to win large deals, especially as its largest client British Telecom moves more work to captives and other vendors. We expect a strong quarter with deal ramp ups and margin expansion, wrote Surendra Goyal, Citi analyst in a note to clients. Goyal expects margins to be up 2.4% percentage from June quarter, as the company had deferred pay hikes to the fourth quarter ending March 31. In the September quarter, most large Indian IT services companies had performed better than expected, aided by a broad-based revival in demand for technology outsourcing services in the United States, industrys largest market. Infosys reported a 3.8% jump in dollar revenue, while TCS posted a 5.4% growth sequentially. Cognizants sales grew 6.7% in the quarter. But quarterly growth aside analysts will be keenly watching for management commentary on how the company plans to compensate for material weakness in the BT account. Tech Mahindra, which began as a dedicated offshore development centre for BT in 1986, is still dependent on the company for a large portion of its revenue. Even after merger with Satyam, BT counts for about 12% of overall sales. Over the last eight quarters, revenue from BT account has been falling at an average sequential rate of 3.5%. Given Tech Mahindras presence in most large accounts and intense vendor competition, the long-term growth visibility remains low, whilst BT continues to be a drag. The company lacks distinct competitive advantages to maintain the historical (15-20%) growth in managed services offerings, Ankur Rudra of Ambit Capital wrote in a note. Rudra has a sell recommendation on the stock. A broad turnaround would require the company to diversify beyond the sectors in which it has a strong presence. Historically, the company dominated the telecom sector - which is about 48% of revenue and the Satyam gave it a hold in manufacturing - close to 20% of revenue. The company has been trying to grow its footprint in the financial services space - a key sector for most Indian IT firms. The company is seeing good traction in wealth management, asset management and risk management side of the business which is driving growth. The company has seen a turnaround in the last 2 quarter, with the pipeline in the last 3 years and improving large deal wins, Pratik Gandhi, analyst with IDBI Securities, said. Gandhi has a buy rating on the stock. Acquisitions will also be a key part of the strategy. The company has said it wants to reach $5 billion in revenues a year by 2015, up from $2.6 billion a year currently. About $500 million-$1 billion of that amount will come in from acquisitions, the company has signalled. The company has also undertaken several steps to strengthen core areas, such as greater emphasis on cross-selling services, hiring senior sales professionals, management had told analysts after the Satyam merger closure.
Posted on: Thu, 07 Nov 2013 08:58:44 +0000
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