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Oct 31, 2012, 01.34 PM IST | Source: Moneycontrol.com

Buy Mahindra Satyam; target of Rs 134: Dolat Capital

Dolat Capital is bullish on Mahindra Satyam and has recommended buy rating on the stock with a target of Rs 134 in its October 30, 2012 research report.

Dolat Capital is bullish on Mahindra Satyam and has recommended buy rating on the stock with a target of Rs 134 in its October 30, 2012 research report.

“Mahindra Satyam reported Q2 FY13 numbers inline with our estimates with a Revenue growth of 3.1% QoQ at ` 19.4bn (Revenue in USD 354mn inline with DE of USD 355mn). . IT services revenues grew 3.3% QoQ in ` terms whereas BPO grew by 2% QoQ driven by sustained business momentum across verticals (Manufacturing vertical witnessed QoQ growth of 6.5%). vCustomer contributed revenues to the tune of USD 4mn in Q2 inline with its annualized run rate of USD 16mn.”
 
“Satyam has been delivering improved performance quarter after quarter. It has made commendable progress in its financial performance with 6 quarter Revenue CQGR of 6% (well ahead of peers) and 730bps improvement in the operating profitability. The pipeline continues to be robust (3 key deal wins in the quarter) and the strong hiring (added 791 employees in Q2FY13) indicates sustained business traction.Operating profits grew by 4.6% QoQ (20bps gain QoQ to 19.3%) as it improved on efficiency through lower subcontracting cost and certain effort shift on to offshore which negated the 100bps impact of wage hike effective during the quarter. It has offered 1.5%/6% hike for its onsite/offshore employees. PAT for the quarter degrew by 21% QoQ at ` 2.8bn ahead of our estimate of ` 3bn as OPM gains were negated by sharp rise in Fx losses of Rs 840mn during the quarter.”

“We believe that the settlement of the various claims (ED directive against the Raju claims on MSAT) and strong recovery in the financial performance would lead to rerating on the stock. We believe that post merger with Tech Mahindra (swap of 8.5: 1) the combined entity will overcome most of the hangovers of the two constituents and will lead to a re-rating of the stock. We maintain our positive view with an buy rating on the stock with a target price of Rs 134, valued at 10x of its FY14E earnings of Rs 13.4 per share (TechM TP: Rs 1200),” says Dolat Capital research report.

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