Mahindra Satyam :TP: ` 135 Buy : Dolat

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.

JBF Ind, Allahabad Bank, Reliance Capital, Mahindra Satyam, United Spirits, jindal poly films, :: Business Line

 

Angel Broking - Mahindra Satyam - RU4QFY2012 - Result Updates - PDF link

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Mahindra Satyam - RU4QFY2012

Mahindra Satyam (Satyam) announced its consolidated Q4 FY2012:: Microsec Research

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Mahindra Satyam (Satyam) announced its consolidated Q4 FY2012 and FY2012 results on 17 May 2012. A glimpse of the same is reflected below:

The company’s top line decreased q-o-q by 3.0% to `1,665.8 Crores while its bottom line expanded 73.2% sequentially to `534.2 Crores in Q4 FY2012. Although the bottom line, containing exceptional gain of `109.4 Crores and tax reversal of `94.3 Crores, barring these factors as well, Satyam was able to report incremental net income during the quarter. Led by strong numbers during the quarter, the stock may witness buying interest in the near term.

Regards,

Team Microsec Research

Tech Mahindra, Mahindra Satyam to merge :Motilal Oswal

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Tech Mahindra, Mahindra Satyam to merge
2:17 swap ratio; synergies over time; near term growth headwinds


 The Board of Directors at Tech Mahindra and Mahindra Satyam approved the merger
ratio of 2 Tech Mahindra shares for every 17 shares of Mahindra Satyam.
 The joint entity will have USD2.47b revenue in FY12, 75,000+ strong workforce and
350+ active clients, across 54 countries.
 Our estimate for total PAT stands at INR14.8b in FY12E and INR14b in FY13E. On a
diluted share base of 211m (ex 24m treasury shares), this implies an EPS of INR70.1 in
FY12E and INR66.1 in FY13E.
 The companies expect synergy from leveraging each other's expertise, economies of
scale, and standardization of business practices. We expect the synergy benefits to
start reflecting in the financials only over a period of time. However, key headwinds
persist in the near-medium term: (1) Muted revenue outlook at Satyam, and (2)
Uncertainty over BT revenues at Tech Mahindra.
 The combined entity trades at 10.3x FY13E earnings. Even if we value Satyam at 12x
and Tech Mahindra at 9x FY13E PAT, our resulting target price of INR734 implies 7%
upside. Maintain Neutral.

A conclusion to the Satyam Saga ::Business Line

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The merger of Mahindra Satyam into Tech Mahindra last week sent both stocks soaring. The swap deal of two shares of the parent for every 17 of Mahindra Satyam was seen as favouring Satyam shareholders marginally.

The parent, through this deal, paid well over a third of the price it paid earlier for a controlling stake in 2009. Satyam shareholders who did not tender their shares in the open offer made by Tech Mahindra in June 2009 have been rewarded for their patience.

Tech Mahindra: Thoughts on Tech Mahindra (TM)-Satyam merger :: Kotak Securities PDF link

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Tech Mahindra: Thoughts on Tech Mahindra (TM)-Satyam merger
` TM valued at a premium to Satyam in the merger process
` Merger creates a large IT organization but still with some portfolio issues

http://www.kotaksecurities.com/pdf/indiadaily/indiadaily22032012.pdf

MAHINDRA SATYAM LTD(:: Merger Impact Details :: Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight22032012.pdf


MAHINDRA SATYAM LTD (MSL)
PRICE: RS.78 RECOMMENDATION: NA
TARGET  PRICE:  RS.NA FY13E P/E: 9X
Merger with Tech Mahindra approved; We terminate coverage on the stock
q The Boards of Directors of Mahindra Satyam (MS) and Tech Mahindra
(TM) have approved a proposal to merge Mahindra Satyam with Tech
Mahindra along with certain wholly owned subsidiaries of Mahindra
Satyam and Tech Mahindra. The proposal is subject to various approvals
and the merger is likely to be consummated in the next 6 - 9 months.
Post-merger, the stock of MS will be de-listed from the bourses.
q We opine that, the price of MS will now be largely influenced by the projected performance of the merged entity and the valuations accorded to
the same. We also believe that, the price of the MS stock will move in
line with that of TM till the time the stock is de-listed. We do not have
active coverage on TM. Thus, we discontinue our coverage on MS.
The details
n The merger of MS into TM will be done through a share swap. The exchange
ratio has been fixed at 2 shares of Tech Mahindra for every 17 shares of
Mahindra Satyam.
n TM will issue 103.4mn new shares, thereby increasing its outstanding shares to
230.8mn and its equity capital to Rs.2.308bn. TM currently holds about 43%
stake in MS. By virtue of the merger, about 10.4% of equity capital of the combined entity will be held in the form of treasury stock. These shares will be utilized by the merged entity to further its growth plans.
n In the merged entity, the Mahindra Group will own 26.3%. British Telecom will
own 12.8%, 10.4% will be held as treasury stock and the balance by public
(34.4% by the public shareholders of Mahindra Satyam and 16.1% by the public
shareholders of Tech Mahindra).
n The consolidated entity will be a $2.4bn revenue entity with EBIDTA margins of
about 17%. It will employ about 75,000 people and will have more than 350
active clients.
Strategic benefits
n We believe that, the combined entity will have some strategic benefits. While
the entity will have a broader and larger service offering, the cross selling opportunities will provide greater scale up potential to the merged entity.
n We expect the merged entity to have operational synergies, which may result in
improvement of margins, other factors remaining constant.
n It will have a balanced mix of revenues from diverse sectors like Telecom, Manufacturing, Technology, Media & Entertainment, Banking Financial Services and
Insurance, Retail and Healthcare. To that extent, the service offerings will be
similar to several of the larger players.
n The company will have a diversified and well-balanced revenue base with
Americas contributing 42% of revenues, Europe 35% and Emerging Markets
23%.

Angel Broking - Tech Mahindra and Mahindra Satyam - Company Update PDF link

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Merger Update on Tech Mahindra and Mahindra Satyam with anAccumulate recommendation on Tech Mahindra for a Target Price of `750 (12 months).

Merger announced

The Board of Directors of Tech Mahindra (Tech M) and Mahindra Satyam (Satyam) have approved the merger of both the companies along with their wholly owned subsidiaries, Venturbay Consultants Pvt. Ltd., C&S System Technologies Pvt. Ltd., CanvasM Technologies Ltd. and Mahindra Logisoft Business Solutions Ltd. The swap ratio approved by the board of both the companies is 2:17, i.e., 2 shares of Tech M (face value of `10 each) for every 17 shares of Satyam (face value of`2 each). The merger process could take up to nine months to complete and will be effective from April 1, 2011.

Hold Mahindra Satyam; Target : Rs 75 ::ICICI Securities

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R u p e e   h a s   a l l   t h e   s a y …
Mahindra Satyam reported Q3FY12 numbers with revenue of | 1718
crore and PAT of | 308 crore (I-direct estimate: | 1720 crore and | 175
crore respectively). Rupee revenue growth of 8.9% QoQ was aided by a
depreciating rupee while dollar revenues declined ~1.5% QoQ. EBITDA
margins expanded 87 bps QoQ. Wage inflation impacted margins by 230
bps and were largely offset by rupee depreciation. Core operational
performance was subdued with volume declining 1.3% QoQ, active client
base declining by 11 and five of $10 million accounts moving to lower
subgroups. We have raised our estimates to account for the quarterly
beat but maintain our HOLD rating.
ƒ Earnings summary
Q3FY12 US$ revenues declined 1.5% QoQ to $325 million ($330
million in Q2) while in rupees they grew 8.9% QoQ (9% estimate) to
| 1719 crore helped by rupee depreciation. PAT increased 29.4%
QoQ to | 308.4 crore from | 238.2 crore in Q2 and above our | 175
crore estimate. However, note that reported PAT was aided by | 151
crore other income primarily comprising f/x (| 60 crore), shift to
fixed deposit from mutual funds and interest on FDs (| 91 crore).
ƒ Operating metric highlights
Across geographies, revenues from North America (50% of Q3FY12
revenues), Europe (25%) and rest of the world (25%) declined 5.3%
QoQ and grew 2.6% QoQ each, respectively. Across verticals, BFSI
showed traction with 8.9% QoQ growth, followed by others, which
grew 8.3% QoQ whereas both healthcare and manufacturing
declined 15.6% QoQ and 1.5%QoQ, respectively.
V a l u a t i o n
We have modelled rupee revenue growth of 26.7%/14.8% for
FY12E/FY13E, respectively, (FY10-FY13E CAGR of 13.3%) and 4.2% EPS
decline for FY13E. We continue to value the stock at 9.1x our FY13E EPS
estimate of | 8.2 i.e. at | 75 and maintain our HOLD rating.

QUERY CORNER: Sterlite Industries, UCO Bank, Mahindra Satyam, TVS Motor, Opto Circuits, GTL Infrastructure, Berger Paints, IOB ::Business Line

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Please advise me on the outlook for Sterlite Industries and UCO bank bought at Rs 130 and Rs 65 respectively.

K. Kunhiraman

Sterlite Industries (Rs 113.9): After peaking out in January 2010, Sterlite Industries has been on a long-term downtrend. In August 2011, the stock broke through a key support at Rs 150 and accelerated downwards. But, its long-term support at Rs 86 provided base in December 2011 and the stock changed its direction. Investors with long-term perspective can consider buying the stock on declines with stop-loss at Rs 86. A strong move above the immediate resistance at Rs 130 will take the stock northwards to Rs 150 and to Rs 165 in the long-term. Nevertheless, a tumble below Rs 86 will drag the stock down to the Rs 70 - 74 range.

Short-term trend has been up for the stock ever since bottoming out last month. But it is likely to face key resistance at Rs 120 in the days ahead. Failure to move above this resistance will pull the stock down to Rs 100. Significant supports below this level are at Rs 95 and Rs 86.

Mahindra Satyam Outlook ::Deutsche Bank

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Mahindra Satyam
Outlook
We rate Mahindra Satyam (MSat) Hold with a target price of INR90. We believe the
announcement of the revised financials has gone a long way to rebuild client
confidence in the company. With the prospect of strong improvement in new client
wins and broad-based exposure to existing clients, we expect the company to report a
15.5% revenue CAGR over FY12-14E. This should improve employee utilisation and help
Satyam substantially raise its very low margin. We thus expect the company to report
an earnings CAGR of 27% over the same period. In spite of the near resolution of the
most cases pending against the company and no perceived incremental adverse impact
on its financial health, we retain our Hold rating since the stock has outperformed the
Sensex by 25% ytd and we believe our target price adequately reflects the lowered risk
profile of the company.
Valuation
With MSat’s announcement of its audited and re-stated financials, thereby making it
current with respect to financial reporting, we believe it is appropriate to value the
company. In line with peers, we value MSat on a one-year forward P/E basis. Although
it has better capability, Satyam's current revenue profile puts it in line with the valuation
of other mid-cap companies, in our opinion. Thus, disregarding the company's high
earnings potential and taking cognizance of the overhang from contingent liabilities, we
value the company at 10x FY13E. Our target P/E multiple is based on the average of
FY13E P/E multiples at which comparable mid-cap IT services companies are trading in
the Indian market.
Risks
Key upside risks to our Hold rating include: (1) A better-than-expected turnaround in
revenue growth and margin trajectory, (2) amicable resolution of the outstanding
disputes with minimum damage to the financial health of the company and (3) a sharp
pickup in discretionary spending in the package implementation segment, in which the
company has a dominant presence. Key downside risks to our Hold rating include: (1)
pressure on billing due to lower rates negotiated during the re-building period, (2)
continuation of client attrition and poaching of the highly skilled package
implementation resources, (3) significantly higher liability from lawsuits and (4) extreme
volatility in currency-denting margins and a longer-than-expected global downturn
prolonging the recovery for the industry in general and the company in particular.

Mahindra Satyam Outlook ::Deutsche Bank

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Mahindra Satyam
Outlook
We rate Mahindra Satyam (MSat) Hold with a target price of INR90. We believe the
announcement of the revised financials has gone a long way to rebuild client
confidence in the company. With the prospect of strong improvement in new client
wins and broad-based exposure to existing clients, we expect the company to report a
15.5% revenue CAGR over FY12-14E. This should improve employee utilisation and help
Satyam substantially raise its very low margin. We thus expect the company to report
an earnings CAGR of 27% over the same period. In spite of the near resolution of the
most cases pending against the company and no perceived incremental adverse impact
on its financial health, we retain our Hold rating since the stock has outperformed the
Sensex by 25% ytd and we believe our target price adequately reflects the lowered risk
profile of the company.
Valuation
With MSat’s announcement of its audited and re-stated financials, thereby making it
current with respect to financial reporting, we believe it is appropriate to value the
company. In line with peers, we value MSat on a one-year forward P/E basis. Although
it has better capability, Satyam's current revenue profile puts it in line with the valuation
of other mid-cap companies, in our opinion. Thus, disregarding the company's high
earnings potential and taking cognizance of the overhang from contingent liabilities, we
value the company at 10x FY13E. Our target P/E multiple is based on the average of
FY13E P/E multiples at which comparable mid-cap IT services companies are trading in
the Indian market.
Risks
Key upside risks to our Hold rating include: (1) A better-than-expected turnaround in
revenue growth and margin trajectory, (2) amicable resolution of the outstanding
disputes with minimum damage to the financial health of the company and (3) a sharp
pickup in discretionary spending in the package implementation segment, in which the
company has a dominant presence. Key downside risks to our Hold rating include: (1)
pressure on billing due to lower rates negotiated during the re-building period, (2)
continuation of client attrition and poaching of the highly skilled package
implementation resources, (3) significantly higher liability from lawsuits and (4) extreme
volatility in currency-denting margins and a longer-than-expected global downturn
prolonging the recovery for the industry in general and the company in particular.

MAHINDRA SATYAM Getting back on track ::Edelweiss

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Mahindra Satyam (Satyam) reported a reasonable 4.5% QoQ volume
growth in Q2FY12 comparable to tier‐1 peers. Revenue in constant
currency surged 4% QoQ, a tad lower than peers, due to higher offshore
revenue share. Margin improved just 50bps QoQ despite currency boost
due to provision for doubtful debts and higher share of systems
integration revenue. Muted hiring and management commentary on
large deal ramp ups delay hint at muted performance in the near term.
The stock is not under coverage.
Volumes surge, but margin disappoints
Satyam’s Q2FY12 revenue at INR15.8bn grew 10% QoQ partly aided by better realised
exchange rate and hardware/software licence purchases for certain projects. In
constant currency, it reported 4% QoQ revenue growth driven by 4.5% QoQ volume
surge. EBITDA margin improvement of just 50bps QoQ was disappointing, despite
benefiting from 6.7% higher QoQ realised exchange rate. Margin was impacted by
higher share of India business, hardware/software licence purchases, visa expenses
and provision for doubtful debts. Net profit at INR2.4bn grew just 5.8% QoQ despite
forex gain of INR337mn as tax rate surged to 19.5% from 15.9% in Q1FY12.
Commentary on near‐term business less optimistic
The company reported 6% QoQ growth (nearly double its average growth rate) in USD
terms in top 20 clients. Yet, Satyam’s commentary on near‐term performance was less
optimistic. It stated some delays in ramp up of large deals, especially in Europe. It hired
650 people (2% QoQ growth in headcount) during the quarter, mostly laterals, and
stated that it is focusing on just‐in‐time hiring. It also highlighted that since 52% of
revenue came from time & material based pricing projects, fewer working days in
Q3FY12 are likely to impact growth. It expects margin to be impacted by 250‐300bps in
Q3FY12 due to salary hikes, which are effective October 2011.
Outlook and valuations: Building back gradually; NOT RATED
Satyam’s Q2FY12 performance is reasonable. While margin will decline in Q3FY12 due
to salary hikes, it is focused on improving margin in the future. The Street is estimating
INR8.7bn EBITDA in FY12 compared to INR4.5bn in H1FY12. Hence, there will likely be
upgrades. It is trading at 11x FY12E earnings. The stock is not under our coverage.

Mahindra Satyam:: 2QFY2012 Result Update:: Angel Broking

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Mahindra Satyam (Satyam) reported its 2QFY2012 results, which were lower than
our expectations on the operating front, but stood modest on the net profit front.
The major highlight of the result was 4.5% qoq volume growth with the addition
of 36 new customers during the quarter. The company is back on the growth
track after two years of metamorphosis undertaken by TechMahindra’s
management post its acquisition in June 2009. We continue to maintain our
Accumulate rating on the stock.
Quarterly highlights: For 2QFY2012, Satyam reported USD revenue growth of
3.2% qoq to US$330mn, led by volume growth. In INR terms, revenue came in at
`1,578cr, up by whopping 10.0% qoq. The company’s EBITDA and EBIT margin
increased by 49bp and 63p qoq to 15.3% and 12.8%, respectively, negatively
impacted by higher operational expenses. PAT came in at `238cr, up 5.8% qoq,
aided by higher other income.
Outlook and valuation: The company expects the enterprise business solutions
(EBS) service and the manufacturing vertical to bolster its growth and help it to
track the industry’s growth rate. This is coherent with the demand color given by
managements of most other tier-I companies as well. We expect the company’s
core competence in EBS to supplement growth and post a 15.3% and 15.9%
CAGR in USD and INR revenue, respectively, over FY2011-13E. Also, with
adequate margin levers such as 1) employee pyramid rationalization;
2) improving utilizations and 3) rationalizing SGA expenses, we expect the
company’s EBITDA margin to improve to 14.6% and 15.0% for FY2012 and
FY2013, respectively, from 8.8% in FY2011. At the CMP of `73, the stock is
trading at 10.0x FY2013 EPS of `7.3 i.e., at a PEG of 0.32x. We value the stock
at 40% discount to Infosys’ target FY2013 PE i.e., 11.0x and maintain our
Accumulate rating on the stock with a target price of `80.

Mahindra Satyam (CMP: `70/ TP: `81/ Upside:15%) ::Angel Model Portfolio: November 2011

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􀂄 Mahindra Satyam (Satyam) has enterprise business solutions (EBS) (~40% of
revenue) and manufacturing (~32% of revenue) as its anchor service line and
vertical, respectively, which is showing strong traction. Hence, we expect the company
to grow at a revenue CAGR of 15.3% and 15.9% in USD and INR, respectively.
􀂄 Satyam has adequate margin levers such as 1) employee pyramid rationalization
(number of employees <3 years of experience are very less at ~24% vis-à-vis
industry at 40-45%; 2) strong volume growth expected on the back of a strengthening
deal pipeline expected to improve utilizations to 77% by FY2013; and 3) current
SGA at ~20.5% of sales, which can be brought down to 19.0% by FY2013.
􀂄 We expect the company to maintain its growth momentum as recorded over the
past few quarters and grow at rates comparable to its peers at a 15.3% CAGR in
USD revenue and a 31.5% CAGR in earnings over FY2011-13E. At the CMP of
`70, the stock is trading at a 9.6x FY2013 EPS of `7.3 i.e., at a PEG of 0.30x. We
value the stock at 40% discount to Infosys' target FY2013 PE i.e., 11.0x and
recommend it as one of our top picks with a target price of `81.

Mahindra Satyam: Currency drives EBITDA/PAT beat even as revenues disappoint :: Kotak Sec

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Mahindra Satyam (SCS)
Technology
Currency drives EBITDA/PAT beat even as revenues disappoint. Satyam’s 2QFY12
looked good on headline numbers, but disappointed on details. Better-than-expected
average Re/US$ realization and higher other income drove 1.5% EBITDA and 15% net
income beat for 2QFY12 even as US$ revenues missed our estimate by 1.8%. Revised
currency assumptions drive a 13/15% increase in our FY2012/13E EPS estimates. We
raise our target price to Rs80/share (from Rs70) and rating to REDUCE (from SELL).

Mahindra Satyam Higher other income drive profit beat HOLD ::Emkay

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Mahindra Satyam

Higher other income drive profit beat

HOLD

CMP: Rs 73                                       Target Price: Rs 80

---

n     MSat’s Q2FY12 profits beat estimates aided by higher other income despite a relatively anemic revenue growth at ~3.1% QoQ ( INR rev bolstered by lower US$/INR conversion rate)

n     Revenues at US$ 330 mn(+3.1% QoQ) missed estimates while EBITDA margins improved by ~50 bps QoQ to 15.3% (V/s est of ~60 bps increase). HC increased by ~654 QoQ to 32,092

n     Growth within top clients impressive( top 5/10 client revenues up by 8%/4% QoQ) while US/BFSI/TIME drive growth with a 8%/16%/9% sequential increase

n     FY12/13E earnings raised by 15/17% to Rs 7.3/7.5 driven by lower currency resets despite moderation in our US$ revenue assumptions. Retain HOLD with a revised TP of Rs 80

Hold Mahindra Satyam; Target : Rs 75 ::ICICI Securities

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U n c e r t a i n   m a c r o   s h a d o w s  u n d e r l y i n g   s t r e n g t h …
Mahindra Satyam reported Q2FY12 numbers, which were generally
ahead of our estimates. US dollar revenues grew 3.2% QoQ, led by
volume growth while rupee revenue growth of 10% QoQ was aided by
the depreciating rupee. Revenue growth was led by BFSI (grew 15.4%
QoQ) and technology, media & entertainment (8.4% QoQ, TME) vertical.
Noticeably, EBITDA margin expansion was modest despite 2.4% interquarter average rupee depreciation as the company pushed in visa cost
and provision for debtors. We have raised our estimates marginally to
account for the quarterly beat and rupee depreciation but macro keeps us
wary and continues to influence our HOLD rating.
ƒ Earnings summary
Q2FY12 US dollar revenues grew 3.2% QoQ (4% QoQ CC) to $330
million while those in rupees grew 10% QoQ (3.3% estimate) to |
1578 crore helped by 4.5% overall volume growth. PAT increased
by 5.8% to | 238 crore from | 225  crore. The company is giving
salary hikes of around 12% offshore and 2.5% onshore in Q3, which
could negatively impact the EBITDA margins by 250-300 bps.
ƒ Operating metric highlights
Across geographies, revenues from North America (52% of Q2FY12
revenues), Europe (24%) and rest of world (24%) grew 7.4% QoQ,
3.2% QoQ and declined 4.7% QoQ, respectively. Across verticals,
BFSI showed traction with 15.4% QoQ growth, followed by TME,
which grew 8.4%QoQ whereas both healthcare and manufacturing
grew by 3.2%QoQ each.
V a l u a t i o n
We have modelled rupee revenue growth of 23.9%/12.7% for
FY12E/FY13E respectively (FY10-FY13E CAGR of 11.8%) and 7.7% EPS
growth for FY13E. We continue to value the stock at 9.6x our FY13E EPS
estimate of | 7.8 i.e. at | 75 and maintain our HOLD rating.

Satyam Computer – Improved operational control:: RBS,

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We believe Satyam's improved operational execution in past few quarters and
continuing high operating leverage going forward should help it withstand the
recently increased macro headwinds. Despite our FY13/14F EPS cuts of 4%, we
believe EV/EBITDA-based valuations are reasonable. Reiterate Buy


Better poised to withstand macro headwinds
With challenges of client attrition, financial restatements, and the right-sizing of an excess
employee base behind the company, and current contract renewal rates with existing clients
above 95%, we believe that Satyam is now better poised to withstand the increased macro
headwinds. Satyam is now participating in large deals above TCV of US$25m-50m with
accelerated large deal activity in last couple of quarters. Despite the high revenue
contribution from discretionary services (where growth challenges are high in times of macro
turmoil), Satyam’s diversified revenue base across verticals and geographies should limit the
revenue growth challenges going forward, in our opinion.
High operating leverage to continue
Despite the increased macro headwinds, we believe Satyam’s operating leverage should
mitigate any margin pressure, given its headroom in various margin levers continues to
remain high including: 1) one of the lowest compositions of employees with less than three
years’ experience and an increasing pool of fresh college hires, 2) offshoring and 3) SG&A
leverage. Despite Satyam’s low revenue base versus large-cap peers, we do not anticipate
any material billing rate pressure given Satyam’s much lower rates. On the contrary, we
expect relatively higher improvement post macro stabilisation.
Reiterate Buy
Given the current elevated macro headwinds, we cut our USD revenue estimates by 5% and
INR EPS by 4% for FY13/FY14. We continue to value Satyam on EV/EBITDA basis given
the high volatility below the EBITDA line from other income, forex gain/loss and tax. We cut
our target price to Rs86 (from Rs94) which implies an FY13F EV/EBITDA of 7.6x, down from
the earlier 8.2x, to maintain the discount of around 35-40% to our industry benchmark
Infosys and around 20% to HCL Tech (to factor in lower revenue and EBITDA margins than
Infosys and HCL).