Mahindra Satyam - 4QFY2012 Result Update - Angel Broking

Mahindra Satyam (Satyam) reported its 4QFY2012 results, which were ahead of ours as well as street's expectations on all fronts. The major highlight of the result was considerable expansion in operating margin despite INR appreciation. The company is back on its growth track after two years of metamorphosis undertaken by Tech Mahindra's management post its acquisition in June 2009. We continue to maintain our Buy rating on the stock.

Quarterly highlights: For 4QFY2012, Satyam reported revenue of US$337mn, up 3.7% qoq, led by 1.9% qoq volume growth. In INR terms, revenue came in at Rs.1,666cr, down 3.0% qoq due to INR appreciation against USD during the quarter. The company's EBITDA and EBIT margin increased by 132bp and 107bp qoq to 17.5% and 15.0%, respectively, aided by reduction in rental expenditure and some one-time costs reversals. PAT stood tall at 534cr, up 73.2% qoq, aided by one-time gain of Rs.109cr and deferred tax asset of Rs.162cr. PAT, adjusted for one-time gain, came in at Rs.425cr, up 38% qoq.

Outlook and valuation: Satyam has enterprise business solutions (EBS) (~40% of its revenue) and manufacturing (~32% of its revenue) showing modest traction. The company expects this service and vertical, respectively, to bolster growth and help it to track the industry's growth rate. We expect the company's core competence in EBS to supplement growth and post a 10.4% and 10.5% CAGR in USD and INR revenue, respectively, over FY2012-14E. On the operating front, Satyam scaled up its margins from 8.8% in FY2011 to 16.0% in FY2012 on the back of factors such as INR depreciation and rationalization of employee pyramid. On the EBITDA front, the company is expected to post a 10.3% CAGR over FY2012-14E. We value the stock at 11x FY2014E EPS, which gives a target price of Rs.86. We maintain our Buy rating on the stock.

Source : Equity Bulls

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