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Research
Mahindra Satyam - 1QFY2013 Result Update - Angel Broking
Posted On : 2012-08-04 08:08:11( TIMEZONE : IST )
Mahindra Satyam (Satyam) reported a strong set of 1QFY2013 numbers, beating our as well as the street's expectations across the board. The major highlight of the result was the considerable expansion in the operating margin (~420bp qoq). Satyam has successfully addressed its key concern areas in the past three years of client mining, employee retention, margin expansion, and dispute resolution. The company is back on its growth track after three years of metamorphosis undertaken by Tech Mahindra's management post its acquisition in June 2009. We recommend a Buy rating on the stock.
Quarterly highlights: For 1QFY2013, Satyam reported revenue of US$342mn, up 2.9% qoq. Satyam did a small acquisition of vCustomer during the quarter which contributed US$2mn to the consolidated net revenue. On an organic basis, the USD revenue grew by 2.4% qoq. The company's EBITDA margin increased by 417bp qoq to 21.7%, on the back of INR depreciation and reduction in selling, general and administrative (SG&A) expenses. The PAT stood tall at Rs.352cr, aided by forex gain of Rs.66cr in 1QFY2013 vs. a loss of Rs.59cr in 4QFY2012.
Outlook and valuation: The company's outlook remained cautious in the turbulent environment, as it does not expect to be insulated from turn of events on the macro front. However the deal pipeline for the company remains quite healthy across verticals such as manufacturing, retail and BFSI in the US. We expect the company's core competence in enterprise business solutions (EBS) to supplement growth and post a 9.1% and 12.3% CAGR in USD and INR revenue respectively over FY2012-14E. The company continued to deliver operational exuberance with a healthy volume growth. On the EBITDA front, the company is expected to post a 20.3% CAGR over FY2012-14E. At the current market price of Rs.84, the stock is trading at 8.7x FY2014E EPS of Rs.9.7. We value the stock at 10x FY2014E EPS, which gives a target price of Rs.97. We recommend Buy rating on the stock.
