View: Satyam has been delivering improved performance quarter after quarter.
It has made commendable progress in its financial performance with 8 quarter
Revenue CQGR of 4% and 1300bps improvement in the operating profitability.
The pipeline continues to be robust with improved deal participation and success
ratio both on the RTB and discretionary side. We maintain our positive stance
on MSAT/TechM in view of impending merger and likely rerating on the stock.
Revenue Inline: Mahindra Satyam reported Q4 FY13 numbers broadly inline
with our estimates with a 1% growth in USD revenues at USD 356mn inline
with DE of USD 358mn. Volumes grew by 2% QoQ, however the realizations
were soft owing to adverse cross currency movement.
Traction intact: IT services revenues were up by 1.2% in QQ in ` terms owing
to sustained new deal addition. BPO degrew by 27% QQ as the revenues
boosted by Holiday weekend revenues in Q3 were absent during the quarter. It
has set up its large deals focus group to ensure better success ratio in the deal
wins. It is confident of benefiting from likely pent up demand in the discretionary
spending based on its strong positioning and expect to exceed NASSCOM
14% revenue growth outlook for FY14.
Exceptional item flares reported PAT: Operating profits degrew by 14% QQ
(280bps decline QQ to 16.9%) owing to smoothening of BPO revenues during
the quarter and on account of one time charge on change in policy on providing
for leaves/gratuity contingencies. It has gained from a reversal of impairment
provision of subsidiary of about ` 135bn as against outgo on Aberdeen settlement
in Q3 leading to a growth of 468% in reported PAT. PAT for the quarter stood at
` 4.5bn. Adjusted PAT down 7% QQ and was below DE.
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It has made commendable progress in its financial performance with 8 quarter
Revenue CQGR of 4% and 1300bps improvement in the operating profitability.
The pipeline continues to be robust with improved deal participation and success
ratio both on the RTB and discretionary side. We maintain our positive stance
on MSAT/TechM in view of impending merger and likely rerating on the stock.
Revenue Inline: Mahindra Satyam reported Q4 FY13 numbers broadly inline
with our estimates with a 1% growth in USD revenues at USD 356mn inline
with DE of USD 358mn. Volumes grew by 2% QoQ, however the realizations
were soft owing to adverse cross currency movement.
Traction intact: IT services revenues were up by 1.2% in QQ in ` terms owing
to sustained new deal addition. BPO degrew by 27% QQ as the revenues
boosted by Holiday weekend revenues in Q3 were absent during the quarter. It
has set up its large deals focus group to ensure better success ratio in the deal
wins. It is confident of benefiting from likely pent up demand in the discretionary
spending based on its strong positioning and expect to exceed NASSCOM
14% revenue growth outlook for FY14.
Exceptional item flares reported PAT: Operating profits degrew by 14% QQ
(280bps decline QQ to 16.9%) owing to smoothening of BPO revenues during
the quarter and on account of one time charge on change in policy on providing
for leaves/gratuity contingencies. It has gained from a reversal of impairment
provision of subsidiary of about ` 135bn as against outgo on Aberdeen settlement
in Q3 leading to a growth of 468% in reported PAT. PAT for the quarter stood at
` 4.5bn. Adjusted PAT down 7% QQ and was below DE.
Research
Mahindra Satyam May 16, 2013
Merger update: It has extended the validity of the scheme of amalgamation by a
further period of six months i.e. upto 30th September 2013. It has reached penultimate
stage of completing the merger and has been able to largely centralized its efforts
to juice out most of the synergetic opportunity available.
Key Highlights
In segmental terms, information technology revenues grew by 1.2% QQ in
reported terms whereas BPO revenues (3% of total revenues) degrew sharply
by 27% QQ owing to absence of one time revenues reported in Q3 (driven by
holiday seasons).
Volume grew by 2% however 1% cross currency impact led to 1% growth in the
USD revenues.
Deal momentum remains intact with 5 major wins during the quarter (across
geographies and verticals). It added 60 new clients (gross) in the quarter, taking
the total count to 385.
It has witnessed better success ratio in the deal pipeline and expects sustained
new deal flows in CY13. Current win ratio is one of the lowest among peers.
Employee count reached 36,067 by end of Q4 FY13, with a net decline of about
900 employees over Q3. It would hire fresher’s about - 2000 offers for the year
and may add more based on the business needs.
Attrition increased from 13.1% in Q3 FY13 to 14.3% in Q4 (15.5% in FY12).
PAT grew by 468% QQ to ` 4.5bn largely on accounting for exceptional gains of
impairment reversal on subsidiary of about ` 1.3bn and absence on one items
payment that was paid for Aberdeen settlement of about ` 2940mn in the previous
quarter.
Valuation
We believe that the settlement of the various claims (Post Aberdeen only claims of
Indian Income Tax authority are due) and strong recovery in the financial performance
would lead to re-rating on the stock. We believe that post merger with Tech Mahindra
(swap of 8.5 : 1) the combined entity will overcome most of the hangovers of the two
constituents and will lead to a strong re-rating of the stock. We maintain our positive
view with an BUY rating on the stock with a target price of ` 135, valued at 11x of its
FY14E earnings of ` 12.5 per share (TechM TP: ` 1280).
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