Visit http://indiaer.blogspot.com/ for complete details Tech Mahindra Ltd.: Cut to Underperform on disappointing Satyam numbers
Rating/PO cut on disappointing nos. from subsidiary Satyam
We downgrade Tech Mahindra (TML) to Underperform from Neutral and cut our
PO by 10% to Rs730 (12x FY12E) on the back of an earnings cut post
disappointing numbers from its 42% subsidiary Mahindra Satyam (Satyam). We
cut TML’s EPS (including Satyam) by 28% for FY11 and 12% for FY12 to factor in
much higher revenue erosion and much lower margins at Satyam than we
assumed previously..For TML standalone, we retain our estimates, though client
risk of BT (top client) remains. The revised EPS (including proportionate share of
Satyam) on which we value TML is Rs43 for FY11E and Rs61 for FY12E.
Satyam revenue & margins much lower than expected
Quarterly revenue (as disclosed in the MIS release last year) appears to have
plummeted from US$440mn in 4QFY09 to an estimated US$250mn now.
Thereby, FY10 EBITDA margins at 8% were much lower than our assumption of
14%, likely due to the lower scale. Bill rates may also be lower than peers. While
revenues have now stabilized and we see margins expanding, EBITDA margins
are unlikely to expand beyond 14% in FY12 (vs. 19% assumed earlier).
1HFY11 Satyam results could disappoint on margins
Satyam is likely to report 1HFY11 numbers on Nov 15. Our FY11/ FY12 EPS for
Satyam are 50% and 25% below consensus led by lower rev and hence margin
assumption, and we see downside risk to consensus. We believe 1H EBITDA
margins could be in the 5-7% range, based on our estimate of US$250mn in
quarterly revenues and a cost estimate based on about 28,000 employees. Risks
to our earnings/rating: faster-than-expected SG&A rationalization post merger &
sustained pick-up in enterprise solutions’ spending by clients.
No comments:
Post a Comment