Accumulate Mahindra Satyam; tgt of Rs 85: Unicon Investment

“Mahindra Satyam Ltd. (Satyam) has delivered a strong performance for the third quarter. The performance for the quarter was above Unicon estimates. Increase in volume growth and realization due to rupee depreciation (by ~9.2% in the quarter) have contributed to a good performance for the quarter.”

“Revenue at INR 1.71 bn was up 34.3% and 8.9% on a YoY and a QoQ basis respectively. Strong growth across Europe and ROW contributed to increase in revenue. EBITDA for the quarter stood at INR 2781 mn, up 238% and 15% on YoY and QoQ basis respectively. EBITDA margins increased by 976 bps and 87 bps on a YoY and QoQ basis respectively. PAT was at INR 3084 mn versus INR 2380 in Q2FY12, up 29% QoQ, 424% YoY. A wage hike in the quarter affected EBITDA margins by ~230 bps, but this was offset by the rupee depreciation (~9.2%) in the quarter. Satyam won key deals in the quarter in the domains of transportation, financial solutions and retail. The company also won a multi-year / multi-million dollar project with a key client in Transportation Engineering. This new win not only includes retaining current scope of work but also has led to additional business in new areas.”

“America revenue growth declined by ~5.6% QoQ while Europe and ROW which reported revenue growth of 2.2% QoQ. The BFSI vertical reported strong growth 8.5% QoQ, while Technology, Media and Entertainment declined by ~11% QoQ and Healthcare and Life-Sciences by 15.9% QoQ, mainly due to certain project specific ramp-downs in the quarter. Top client grew by 7.9%, Top-5 declined by 1.9% while Top-20 grew by 1.6% QoQ. Attrition for this quarter remained stable at 16% as compared to 25% at the same time last year. Utilization was at 75% as compared to 74% at the same time last year. Total headcount stood at 32,280 as of December 31, 2011, a net addition of 188 QoQ.”

“Global macro economic environment will continue to be closely monitored by the entire IT space as majority of their revenue is generated from US and Europe. The deal pipeline of the company continues to remain robust, although a delay in deal closure continues to remain an issue. The company added 35 new clients in the quarter. The company continues to invest in newer technologies like cloud computing and social networking, which should reap rewards in the quarters moving ahead. The planned merger with Tech Mahindra in FY13 will have a significant impact on the company. At CMP the stock trades at a P/E of 9.6x FY13E earnings, we recommend an ACCUMULATE on the stock with an upward revised price target of INR 85,” says Unicon Investment research report.

Public holding more than 90% in Indian cos

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