Satyam’s Aberdeen Settlement Costs Tech Mahindra In the Bottomline

Tech Mahindra announced its Q3FY13 results post market hours yesterday. The result has been better than expectations and has shown overall robustness. There has been growth in the topline as well as at an operational level. However, there was a decline in the net profit of Tech Mahindra caused by Mahindra Satyam’s Aberdeen payout.

Revenues for Tech Mahindra grew sequentially by 10.09% in Q3FY13 to USD 329.4 million. This growth has markets the company’s exception performance in the telecom space. Key clients, strategic partnerships and inorganic initiatives have led to the robust performance of Tech Mahindra. On the basis, of the above, we had recommended Tech Mahindra in our magazine Dalal Street Investment Journal in our special report ‘The IT Outliers’.

Tech Mahindra, while growing on the revenues front, also showed operational excellence. The Operating Profit Margin of Tech Mahindra improved sequentially by 32 basis points to 21.01%. However, the net profit took a hit as it dropped by 8.17% to USD 50.6 million in Q3FY13. The major reason for this decline was Mahindra Satyam’s contribution to Tech Mahindra’s profits. Mahindra Satyam added to USD 6.2 million in profits for Tech Mahindra in Q3FY13 as compared to the addition of USD 22.4 million in Q2FY13. This drastic decline resulted out of the settlement of a pending law suit against Mahindra Satyam filed by Aberdeen Global with the settlement amount as high as USD 68 million (approximately Rs 295 crore).

In the quarter under review, Tech Mahindra also completed the acquisition of Comviva Technologies, which was acquired as 47.02% subsidiary effective December 12, 2012. This helped add Comviva’s results to Tech Mahindra’s for a period of 19 days in Q3FY13. This is expected to provide further benefits to Tech Mahindra starting the quarter ending March 2013.

In the last few quarters, through key client wins, healthy order book and growth triggered by acquisitions and new technologies, Tech Mahindra has been able to outperform the IT industry. Its performance has been regardless of the recent downtrend in the industry and has thus proved out to be a good buy. We maintain our positive outlook for the company in the coming quarters and expect to continue outperformance.