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Tech Mahindra Limited
Satyam Jun-11 results
surprise positively
Quick Comment: Satyam management indicated that it
has limited clarity on the impact of the downgrade of the
sovereign rating of the U.S., the geography that
contributes most to revenue. However, so far it has not
seen any negative reaction from clients with respect to
their IT spending. Overall, management believes that
the company is now well placed to take advantage of
growth opportunities in the market.
Detail of Satyam’s 1Q12 results: Revenues were
US$320m (+5.3% qoq, +17% yoy). EBIT margins
improved further to 12% (+225bps qoq, +702bps yoy).
Net income was Rs2.25bn (-8% qoq, +114% yoy).
Reported EPS was Rs1.9 for 1Q (annualized Rs7.6).
Satyam now has a revenue run rate of US$1.3bn, which
implies growth of 13% yoy in FY12.
Key conference call takeaways:
1) Management now believes that the merger between
Tech M and Mahindra Satyam is likely to take place
in the next 7-8 months.
2) Satyam deferred its salary hikes by a quarter and
would now give offshore hikes of 12% and onsite of
2.5% with effect from 1 October 2011. Management
expects wage hikes to erode its EBITDA margins in
2Q by 250-300bps qoq.
3) Satyam would wind down its ADS in the US in 2012.
The ADS trading would continue for seven months
from the date of providing notice to ADS holders.
4) Sales cycle for discretionary spending remains
longer, per management.
5) Satyam’s cash/cash equivalents as of Jun-11: Rs1.8bn.
Maintain UW rating on Tech M stock: Based on
annualized FY12 EPS estimates, Satyam now trades at
~9x, comparable to mid-caps but at a steep discount to
large caps. We believe lack of clarity on the impending
merger is likely to remain an overhang on Tech M stock.
Due to lagging revenue growth and higher effective tax
rates, earnings growth (excluding Satyam) for Tech M
could remain in single digits in FY12e, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tech Mahindra Limited
Satyam Jun-11 results
surprise positively
Quick Comment: Satyam management indicated that it
has limited clarity on the impact of the downgrade of the
sovereign rating of the U.S., the geography that
contributes most to revenue. However, so far it has not
seen any negative reaction from clients with respect to
their IT spending. Overall, management believes that
the company is now well placed to take advantage of
growth opportunities in the market.
Detail of Satyam’s 1Q12 results: Revenues were
US$320m (+5.3% qoq, +17% yoy). EBIT margins
improved further to 12% (+225bps qoq, +702bps yoy).
Net income was Rs2.25bn (-8% qoq, +114% yoy).
Reported EPS was Rs1.9 for 1Q (annualized Rs7.6).
Satyam now has a revenue run rate of US$1.3bn, which
implies growth of 13% yoy in FY12.
Key conference call takeaways:
1) Management now believes that the merger between
Tech M and Mahindra Satyam is likely to take place
in the next 7-8 months.
2) Satyam deferred its salary hikes by a quarter and
would now give offshore hikes of 12% and onsite of
2.5% with effect from 1 October 2011. Management
expects wage hikes to erode its EBITDA margins in
2Q by 250-300bps qoq.
3) Satyam would wind down its ADS in the US in 2012.
The ADS trading would continue for seven months
from the date of providing notice to ADS holders.
4) Sales cycle for discretionary spending remains
longer, per management.
5) Satyam’s cash/cash equivalents as of Jun-11: Rs1.8bn.
Maintain UW rating on Tech M stock: Based on
annualized FY12 EPS estimates, Satyam now trades at
~9x, comparable to mid-caps but at a steep discount to
large caps. We believe lack of clarity on the impending
merger is likely to remain an overhang on Tech M stock.
Due to lagging revenue growth and higher effective tax
rates, earnings growth (excluding Satyam) for Tech M
could remain in single digits in FY12e, in our view.
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