{"id":2100,"date":"2021-08-02T12:56:31","date_gmt":"2021-08-02T12:56:31","guid":{"rendered":"http:\/\/www.assetmultiplier.co.in\/blog\/?p=2100"},"modified":"2021-08-02T12:56:31","modified_gmt":"2021-08-02T12:56:31","slug":"wage-hikes-impacted-margins-in-q1fy22-tech-mahindra","status":"publish","type":"post","link":"http:\/\/www.assetmultiplier.co.in\/blog\/2021\/08\/02\/wage-hikes-impacted-margins-in-q1fy22-tech-mahindra\/","title":{"rendered":"Wage hikes impacted margins in Q1FY22 \u2013 Tech Mahindra"},"content":{"rendered":"<p><b>Update\u00a0on the Indian Equity Market:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">On Monday, NIFTY ended higher at 15,885 (+0.8%) as it closed near the intraday high level of 15,983. Among the sectoral indices, REALTY (+4.8%), AUTO (+1.4%), and IT (+1.1%) ended higher, and there were no sectoral losers. Among the stocks, TITAN (+3.6%), SHREECEM (+3.5%), and BPCL (+3.1%) led the gainers while UPL (-2.3%), TATASTEEL (-1.5%), and BAJAJFINSV (-0.6%) led the losers.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Excerpts of an interview with Mr. CP Gurnani, MD&amp;CEO, and Mr. Milind Kulkarni, CFO of Tech Mahindra (TECHM) with CNBC TV18 on 30<\/span><span style=\"font-weight: 400;\">th<\/span><span style=\"font-weight: 400;\"> July 2021:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A few of the things that worked well for TECHM over 1QFY22 were that the company focused on bringing in large deals that help in bringing order backlog and predictability in the operations.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">All of the company\u2019s capital allocation is towards cloud and artificial intelligence (AI). TECHM has also made 5G investments in software-defined networks and cloud-based networks. The company usually looks forward to deal wins of US$ 800-1,000 mn every quarter and has signed one of its largest deals in healthcare in 1QFY22.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company did better in a seasonally weak quarter and was able to maintain margins of 15%. There could be tailwinds coming from operating leverage and headwinds coming in terms of a higher cost of the employee addition and retention. Yet, the company is confident of maintaining the EBITDA margin.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Speaking of the company\u2019s costs, there have been two increases. One is the salary increments, second is that the company had to employ a higher number of onsite contractors due to Covid restrictions. The company recovered from the impact partly through operational efficiency with improved utilisation of 60 bps and through increased offshoring.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Inorganic growth is going to continue to be the company\u2019s differentiator. The company has improved a lot of synergy goal delivery, and integration capability. The company is also getting a lot of management talent through its acquisitions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company had planned for 16-18% attrition as the overall demand is not only for Tech Mahindra. The management has repurposed the company to look at tier 2 cities like Nagpur, Trivandrum, Chandigarh, Bhubaneshwar, and Kolkata for hiring. But the management may give another salary hike if the market moves in that direction.<\/span><\/li>\n<\/ul>\n<p><b>Asset Multiplier Comments<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As the country recovers from the second covid wave, the strong demand for the entire IT sector augurs well for the company in the mid to long term.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">With strong deal wins, robust pipeline, margin levers like automation, offshoring, and cost optimization by centralising the back offices of newly acquired entities, TECM is confident of delivering 15%+ EBIT Margins. We believe this confidence is justified.\u00a0<\/span><\/li>\n<\/ul>\n<p><b>Consensus Estimate<\/b><span style=\"font-weight: 400;\">: (Source: market screener website)<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The closing price of TECHM was \u20b9 1,206\/- as on 2-August-2021.\u00a0 It traded at 19x\/18x\/16x the consensus earnings estimate of \u20b9 63\/69\/77 for FY22E\/FY23E\/FY24E respectively.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The consensus target price of \u20b9 1,210\/- implies a PE multiple of 16x on FY24E EPS of \u20b9 77\/-.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Disclaimer: &#8220;The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.&#8221;<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Update\u00a0on the Indian Equity Market: On Monday, NIFTY ended higher at 15,885 (+0.8%) as it closed near the intraday high level of 15,983. Among the sectoral indices, REALTY (+4.8%), AUTO (+1.4%), and IT (+1.1%) ended higher, and there were no sectoral losers. Among the stocks, TITAN (+3.6%), SHREECEM (+3.5%), and BPCL (+3.1%) led the gainers [&hellip;]<\/p>\n","protected":false},"author":13,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[591],"tags":[266,369],"_links":{"self":[{"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/2100"}],"collection":[{"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/users\/13"}],"replies":[{"embeddable":true,"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/comments?post=2100"}],"version-history":[{"count":1,"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/2100\/revisions"}],"predecessor-version":[{"id":2101,"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/2100\/revisions\/2101"}],"wp:attachment":[{"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/media?parent=2100"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/categories?post=2100"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/tags?post=2100"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}