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Nokia cloud shadows Android focus…
Sasken reported Q4FY11 numbers last week, which were generally below
our expectations. However, what surprised us was Nokia’s recent
announcement to partner with Accenture for Symbian development.
Though Sasken continues to work with Nokia on S40 platform (50% of
Nokia revenues), we did a worst-case-scenario analysis to analyse the
impact of the loss of Nokia revenues, were Nokia to completely exit from
Sasken. Our analysis suggests Sasken’s revenue could decline 18% to |
446 crore while its EPS could decline to | 16.4 in FY12. Applying the
existing one-year forward multiple of 4.7x suggests a potential downside
of ~8%. However, we believe any sell-off from such an event presents
attractive entry points for a variety of reasons including attractive
valuations, 15% FCF yield and existing buy-back.
�� Worst case scenario analysis
We have analysed the impact of the loss of Nokia’s account,
contributing ~| 125 crore (~$25 million) annually, on Sasken’s
revenues. We have also assumed that Sasken will generate a
modest | 25 crore and | 50 crore of incremental revenues in FY12E
and FY13E. Recall, last week, Nokia announced its partnership with
Accenture for Symbian development. Were Nokia to completely exit
Sasken, the company’s operating margins could likely decline by
500 bps vs. 17.6% in FY11 and net margin could decline 300 bps to
10.4% (13.4% in FY11). Exhibit 2 highlights our current estimates
and estimates adjusted for the impact of the Nokia account.
Valuation
Sasken is currently trading at compelling multiples of 6x its FY10 diluted
EPS of | 26.6; 0.77x on Mcap/FY10 sales and provides an attractive FCF
and dividend yield of ~15% and ~4%, respectively. The rationale for PE
discount is the likely anaemic growth and poor demand visibility.
However, we believe this is likely to change post H1FY12. Consequently,
we have valued Sasken's core IT business ex-cash at 4.96 x its FY12E EPS
estimate of | 20.6 plus cash/share of | 67.8 to arrive at our price target of
| 170.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nokia cloud shadows Android focus…
Sasken reported Q4FY11 numbers last week, which were generally below
our expectations. However, what surprised us was Nokia’s recent
announcement to partner with Accenture for Symbian development.
Though Sasken continues to work with Nokia on S40 platform (50% of
Nokia revenues), we did a worst-case-scenario analysis to analyse the
impact of the loss of Nokia revenues, were Nokia to completely exit from
Sasken. Our analysis suggests Sasken’s revenue could decline 18% to |
446 crore while its EPS could decline to | 16.4 in FY12. Applying the
existing one-year forward multiple of 4.7x suggests a potential downside
of ~8%. However, we believe any sell-off from such an event presents
attractive entry points for a variety of reasons including attractive
valuations, 15% FCF yield and existing buy-back.
�� Worst case scenario analysis
We have analysed the impact of the loss of Nokia’s account,
contributing ~| 125 crore (~$25 million) annually, on Sasken’s
revenues. We have also assumed that Sasken will generate a
modest | 25 crore and | 50 crore of incremental revenues in FY12E
and FY13E. Recall, last week, Nokia announced its partnership with
Accenture for Symbian development. Were Nokia to completely exit
Sasken, the company’s operating margins could likely decline by
500 bps vs. 17.6% in FY11 and net margin could decline 300 bps to
10.4% (13.4% in FY11). Exhibit 2 highlights our current estimates
and estimates adjusted for the impact of the Nokia account.
Valuation
Sasken is currently trading at compelling multiples of 6x its FY10 diluted
EPS of | 26.6; 0.77x on Mcap/FY10 sales and provides an attractive FCF
and dividend yield of ~15% and ~4%, respectively. The rationale for PE
discount is the likely anaemic growth and poor demand visibility.
However, we believe this is likely to change post H1FY12. Consequently,
we have valued Sasken's core IT business ex-cash at 4.96 x its FY12E EPS
estimate of | 20.6 plus cash/share of | 67.8 to arrive at our price target of
| 170.
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