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UBS Investment Research
Mahindra Satyam
O perating margin continues to increase
Strong revenue growth; net profit of Rs2.25bn vs loss in Q4
Mahindra Satyam (Satyam) reported revenue of Rs14.3bn, up 4.3% QoQ. The
EBITDA margin increased 160bps QoQ to 14.6% primarily led by lower employee
and operating costs. The company posted net profit of Rs2.25bn in Q1 FY12 vs a
loss in Q4 FY11 due to exceptionals on the class action suit. The increase in net
income during the quarter was due to high other income of Rs1.0bn.
Operating margin at 14.6%, SG&A levers present further upside
The consolidated EBITDA margin stood at 14.6% in Q1 FY12, backed by
improvement in IT services margin of 11.9%. We think there is scope for margin
increase in FY12 from SG&A levers in the form of lower legal expenses (around
2.7% of revenue). While we expect a wage hike to dent the margin in Q2, it is
likely to be offset by lower SG&A expenses.
Merger with Tech Mahindra likely by May 2012
Management expects the merger with Tech Mahindra (TechM) to occur in April-
May 2012. While the mechanics of the merger with TechM is yet to be announced,
we believe it could pose an upside risk if the merger ratio is favourable. In
addition, we await any synergy benefit from cross-selling and joint go-to-market
strategy over the medium term.
Valuation: revisiting our estimates
We derive our price target of Rs65 from a DCF-based methodology and explicitly
forecast long-term valuation drivers using UBS’s VCAM tool.
Mahindra Satyam
Mahindra Satyam (Satyam) was founded in 1987. After being acquired by Tech
Mahindra, Satyam is now a part of the Mahindra Group. Satyam offers
consulting, application development and maintenance, enterprise solutions,
infrastructure services and business process outsourcing (BPO) services across
various verticals. The company has presence in 34 countries.
Statement of Risk
A sharp decline in IT spending could result in downward revision of our
earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Mahindra Satyam
O perating margin continues to increase
Strong revenue growth; net profit of Rs2.25bn vs loss in Q4
Mahindra Satyam (Satyam) reported revenue of Rs14.3bn, up 4.3% QoQ. The
EBITDA margin increased 160bps QoQ to 14.6% primarily led by lower employee
and operating costs. The company posted net profit of Rs2.25bn in Q1 FY12 vs a
loss in Q4 FY11 due to exceptionals on the class action suit. The increase in net
income during the quarter was due to high other income of Rs1.0bn.
Operating margin at 14.6%, SG&A levers present further upside
The consolidated EBITDA margin stood at 14.6% in Q1 FY12, backed by
improvement in IT services margin of 11.9%. We think there is scope for margin
increase in FY12 from SG&A levers in the form of lower legal expenses (around
2.7% of revenue). While we expect a wage hike to dent the margin in Q2, it is
likely to be offset by lower SG&A expenses.
Merger with Tech Mahindra likely by May 2012
Management expects the merger with Tech Mahindra (TechM) to occur in April-
May 2012. While the mechanics of the merger with TechM is yet to be announced,
we believe it could pose an upside risk if the merger ratio is favourable. In
addition, we await any synergy benefit from cross-selling and joint go-to-market
strategy over the medium term.
Valuation: revisiting our estimates
We derive our price target of Rs65 from a DCF-based methodology and explicitly
forecast long-term valuation drivers using UBS’s VCAM tool.
Mahindra Satyam
Mahindra Satyam (Satyam) was founded in 1987. After being acquired by Tech
Mahindra, Satyam is now a part of the Mahindra Group. Satyam offers
consulting, application development and maintenance, enterprise solutions,
infrastructure services and business process outsourcing (BPO) services across
various verticals. The company has presence in 34 countries.
Statement of Risk
A sharp decline in IT spending could result in downward revision of our
earnings estimates.
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