Buy Mahindra Satyam; target Rs 93: Dolat Capital

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Buy Mahindra Satyam; target Rs 93: Dolat Capital

Dolat Capital is bullish on Mahindra Satyam and has recommended buy rating on the stock with a target price of Rs 93 in its February 1, 2012 research report.

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RELATED NEWS Hold Dr Reddys Laboratories; target Rs 1650: Emkay Sell Dr Reddys Labs; target of Rs 1519: PINC Research Reduce Vinati Organics; target of Rs 79: Nirmal Bang ALSO READ See previous views by Dolat Capital See what other Experts & Brokerages are saying about Mahindra Satyam See messages about Mahindra Satyam Mahindra Satyam BSE | NSE 30/05/12 Are Mutual Funds betting on Mahindra Satyam?

Dolat Capital is bullish on Mahindra Satyam and has recommended buy rating on the stock with a target price of Rs 93 in its February 1, 2012 research report.

"Mahindra Satyam reported Q3 FY12 numbers broadly in line with our estimates. Topline grew 8.9% QoQ to Rs 17.2bn - largely driven by rupee depreciation in the quarter. Reported profits grew 29% QoQ at Rs 3084mn well ahead of our estimates of Rs 2600mn largely on account of higher other income. Revenues in USD terms declined sequentially by 1.5% as volumes degrew marginally owing to lower number of working days and longer plant shutdowns for the manufacturing clients. It benefitted immensely on fx realizations @ Rs  52.8 per USD as it tends to book most of the invoices towards the end of the month/ Quarter. Operating profits grew by 15% QoQ as gains on better realizations covered up for 230bps impact of wage hike (2.5%/12% for onsite/offshore employees)and lower utilizations. Other income grew significantly as it benefitted from favorable currency gains (Rs 664mn) and improved yield on investments."

"We believe the company has made commendable progress in its financial performance in 9MYTD with a 25% topline growth and 1000bps improvement in the operating profitability. The pipeline continues to be robust and the strong hiring (2300 in H1FY13) indicates sustained business traction. Satyam is currently trading at attractive valuations of 7x of FY13E earnings, However; in anticipation of a merger in CY2012 and expected swap ratio of 1:8 (based on current enterprise value), we believe one should hold Tech Mahindra to leverage on the recovery in Satyam, owing to favourable swap (likely), par valuation (7x on 1year forward earnings) and stronger investor interest (higher upside)."

"We believe that the settlement of the various claims and strong recovery in the financial performance would help further to clear the ground for a merger with Tech Mahindra - likely to be initiated mid 2012. We believe the combined entity will overcome most of the hangovers of the two constituents - Satyam and Tech Mahindra - and will lead to a re-rating of the stock. We maintain our positive view with a Buy rating on the stock with a target price of Rs 93, valued at 9x of its FY13E earnings of Rs 10.4 per share," says Dolat Capital research report.

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To read the full report click on the attachment