Tech Mahindra (TECHM) Q4FY21 revenue grew by 0.7% QoQ in CC (+1.6% in USD) versus our forecast of +1.7% QoQ. Enterprise segment (60.4% of revenue) has grown by 1.8% QoQ in USD with BFSI (16.5% of total revenue) outperforming with 4.9% QoQ growth and Retail, transport & logistics (7.5%) underperforming with QoQ decline of 3.2%, said IDBI Capital in its report.

Communications vertical (39.6%) has grown by 1.4% QoQ in USD. EBIT margin improved by ~55bps QoQ to 16.5%, at a 25-quarter high. The QoQ improvement was driven by operational efficiencies including increase in offshoring & utilization and lower D&A partly offset by increase in SG&A cost and variable payouts. Headcount continues to see QoQ decline (-0.7% to 121k) and attrition has inched up a bit to 13.3% versus. 12.4% in Q3.

Commenting on the result review, IDBI Capital said, "While TECHM's Q4Y21 revenue was slightly lower than our forecast, EBIT margin was a beat. Revenue grew by 0.7% QoQ in CC (+1.6% QoQ in USD terms). EBIT margin improved by ~55bps QoQ to 16.5%, a 25-quarter high. However, recurring EPS of Rs13, -13.7%/+10.5% QoQ/YoY was a miss, impacted by FX loss and higher ETR.

In Q4FY21, TECHM has secured new deals with TCV of USD 1,043 million and is confident of similar run-rate in Q1FY22. For FY22, TECHM has guided for a double-digit revenue growth and EBIT margin of 15%+, higher than our expectation and versus 14.2% in FY21.

While we factor higher EBIT margin for FY22/23, it gets largely offset by higher ETR. We fine-tune our forecast to revenue/EPS CAGR of 9.5%/13.3% over FY21-23. We maintain BUY with new TP of Rs1,118 (vs. Rs1,108) based on PER of 17x FY23E."  

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