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Research
Mahindra Satyam - Good revenue growth; margins ahead of expectations - Religare
Posted On : 2012-11-01 20:30:37( TIMEZONE : IST )
Mahindra Satyam reported a healthy quarter ahead of expectations on the operating level. US$ revenues grew by 3.5% QoQ (RCMLe 3%) while EBIT margins surprised positively, up 20bps QoQ to 19.3%, despite wage hikes. Overall, we note that the management continues to execute well in a tough operating environment and expect consensus upgrades to continue to flow in. We raise our December'13 TP to Rs 140, valuing the stock at 11x FY14E earnings. Satyam remains our top pick in the Indian IT space. Maintain BUY.
- Healthy revenue performance: Satyam reported revenues of US$ 354mn, up 3.5% QoQ, marginally ahead of our estimates of a 3% growth. The growth was led by strong performance in the US/Europe, which grew 4.4%/4.1%. Within verticals, Manufacturing and BFSI continued to deliver healthy performance. Further, the management continues to indicate healthy deal traction and improved participation/wins in deal signings. While macro headwinds persist, we note that the company continues to execute well in a tough operating environment.
- Margins continue to surprise: EBIT margins improved by 20bps QoQ to 19.3% despite a 100bps headwind from wage hikes. The better-than-expected performance was largely driven by optimisations in sub-con costs due to migration of work offshore and lower depreciation. We note that margins have seen a sharp improvement in the past few quarters led by operational efficiencies - we believe further improvement from the current levels would be difficult to drive, more so given the currency headwinds and lower working days in the coming quarters.
- Maintain BUY; we raise TP to Rs 140: Satyam currently trades at 9.6x/8.6x FY13E/FY14E earnings on our new estimates. We value the stock at 11x FY14E EPS to arrive at our December'13 TP of Rs 140, implying a 30% upside from the current levels. Consistent execution on the business and completion of merger with Tech Mahindra remain the key triggers for the stock.
