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Satyam's good execution continued even during 1QFY12 and high net lateral employee additions
(besides freshers) indicates continued demand visibility. We believe the recent correction due to
increased macro headwinds factors in any risk relating to Satyam's higher exposure to
discretionary spend. Buy.
Good execution continues; maintain Buy
Satyam posted another good quarter with USD-denominated revenues up 5.2% qoq (RBS
forecast 3.6%) in 1Q12 and EBITDA margins up 168bp qoq (RBS: 30bp). We are cognisant that
Satyam’s high exposure to discretionary spend is a major risk given increased macro headwinds,
but we believe the recent correction factors this in to some extent. Net addition of 800-plus lateral
employees in 1Q12 indicates continued revenue visibility. We raise our FY12F EPS 22%, led
largely by lower tax rate guidance at 15-18% vs 26-28% previously and 1Q12 PAT
outperformance. Our FY13 EPS and EV/EBITDA-based target price remain the same. We
maintain Buy; any significant slowdown in US/Europe is still a risk.
Growth seen across major verticals
Satyam witnessed mid-single-digit to double-digit qoq growth across each of the major verticals,
including Manufacturing, Hi-Tech and Retail. Revenue from the US grew 3%, in Europe it grew
1% and in the rest of the world 14%. The number of active clients fell due to the company’s policy
of reporting the same above the minimum threshold levels of invoicing. Notably, the number of
clients above US$10m revenues rose by five qoq to 53.
Margin improvement continues
Besides posting 5.2% growth in USD-denominated revenues, qoq improvement in EBITDA
margin continues (up 168bp vs our 30bp forecast). Satyam has postponed the wage inflation by
one quarter to 3Q12 (offshore/onsite wage hikes of 12%/2.5% should affect margins by 250-300
qoq in 3Q12). Despite these headwinds from 3Q12, margin pressure is likely to remain relatively
low for Satyam, given its headroom in various margin levers. Recurring PAT fell 7.9% qoq to
Rs2.25bn (RBS: Rs1.49bn). Besides better operational performance, higher other income and
lower tax led to PAT outperformance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Satyam's good execution continued even during 1QFY12 and high net lateral employee additions
(besides freshers) indicates continued demand visibility. We believe the recent correction due to
increased macro headwinds factors in any risk relating to Satyam's higher exposure to
discretionary spend. Buy.
Good execution continues; maintain Buy
Satyam posted another good quarter with USD-denominated revenues up 5.2% qoq (RBS
forecast 3.6%) in 1Q12 and EBITDA margins up 168bp qoq (RBS: 30bp). We are cognisant that
Satyam’s high exposure to discretionary spend is a major risk given increased macro headwinds,
but we believe the recent correction factors this in to some extent. Net addition of 800-plus lateral
employees in 1Q12 indicates continued revenue visibility. We raise our FY12F EPS 22%, led
largely by lower tax rate guidance at 15-18% vs 26-28% previously and 1Q12 PAT
outperformance. Our FY13 EPS and EV/EBITDA-based target price remain the same. We
maintain Buy; any significant slowdown in US/Europe is still a risk.
Growth seen across major verticals
Satyam witnessed mid-single-digit to double-digit qoq growth across each of the major verticals,
including Manufacturing, Hi-Tech and Retail. Revenue from the US grew 3%, in Europe it grew
1% and in the rest of the world 14%. The number of active clients fell due to the company’s policy
of reporting the same above the minimum threshold levels of invoicing. Notably, the number of
clients above US$10m revenues rose by five qoq to 53.
Margin improvement continues
Besides posting 5.2% growth in USD-denominated revenues, qoq improvement in EBITDA
margin continues (up 168bp vs our 30bp forecast). Satyam has postponed the wage inflation by
one quarter to 3Q12 (offshore/onsite wage hikes of 12%/2.5% should affect margins by 250-300
qoq in 3Q12). Despite these headwinds from 3Q12, margin pressure is likely to remain relatively
low for Satyam, given its headroom in various margin levers. Recurring PAT fell 7.9% qoq to
Rs2.25bn (RBS: Rs1.49bn). Besides better operational performance, higher other income and
lower tax led to PAT outperformance.
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