Mahindra Satyam: Hard toil ahead - report by Emkay

Mahindra Satyam

Hard toil ahead

REDUCE

CMP: Rs 86                                        Target Price: Rs 81

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n     Reinitiate coverage on Mahindra Satyam(MS) with a REDUCE rating and a March’12 TP of Rs 81. We see hard toil ahead for the company as it tries to rebuild itself from the ashes.

n     Mahindra Satyam faces numerous challenges in the form of a weaker competitive positioning, loss of vantage position in core areas of strength (refer section below)

n     Forecast a strong 21% US$ rev CAGR over FY11E-13E (post a 6% YoY decline in FY11) along with improvement in OPM’s to 17.1% in FY12( V/s 8.3% in FY10 reported recently) 

n     Reinitiate with a REDUCE rating and a DCF based March’12 TP of Rs 81, (implying ~11.5x 1 yr fwd P/E, in line with mid tier peers).  Valuations appear rich despite ~15% fall in ~2 weeks