Hold Mahindra Satyam; target of Rs 80: Emkay

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Hold Mahindra Satyam; target of Rs 80: Emkay

Emkay Global Financial Services has recommended hold rating on Mahindra Satyam with a target of Rs 80, in its February 2, 2012 research report.

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RELATED NEWS Sell Bank of India; target of Rs 299: Dolat Capital Reduce Sesa Goa; target Rs 189: Aditya Birla Money Buy Bank of Baroda; target of Rs 907: Angel Broking ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about Mahindra Satyam See messages about Mahindra Satyam Mahindra Satyam BSE | NSE 01/06/12 Are Mutual Funds betting on Mahindra Satyam?

Emkay Global Financial Services has recommended hold rating on Mahindra Satyam with a target of Rs 80, in its February 2, 2012 research report.

"Mahindra Satyam reported a below par revenue US$ revenue performance at US$ 325 mn (-1.5% QoQ, significantly below Emkay est of ~US$ 340 mn) with INR revenue nos aided by a lower US$/INR realization rate of Rs 52.86/$ (V/s 51-51.5 for peers). Op profits and profits beat expectations by ~5%/35% respectively aided by ~90 bps sequential improvement in margins to 16.2% (despite wage increments and against expectations of flat margins) and higher other income (co reported other income of ~Rs 1490 mn V/s exp of ~Rs 590 mn) We note that Dec'11 qtr marks the 2nd successive qtr of 'strong reported numbers but weak on quality' for Mah Satyam. Op metrics performance was mixed with co reporting a decline a no of US$ 10 mn+ clients, however top 10/20 clients grew by ~3.2%/1.6% sequentially. Similarly revenues from US were down by ~6% sequentially while revenues from Europe/ROW grew by ~2.3% QoQ each. HC addition was somber for the 2nd quarter in a row with co adding ~188 people during the quarter to take the total HC to 32,280 with attrition remaining flat sequentially."

"While Mah Satyam maintained that deal pipeline remains healthy, it noted that there were delays in client decision making akin to peers. While Mah Satyam's new management has done well to resurrect the company post taking it over in April'11, we continue to see revenue growth challenges for the company which could get compounded in case of weak demand environment. We note that after reporting decent revenue traction in the previous qtrs, Mah Satyam's revenue performance has lagged peers for 2 successive qtrs and we see challenges on that front, also confirmed by the fact that the company has decided to defer joining dates for ~1,300 of the 5k campus offers for FY12."

"While we cut our US$ revenue estimates (we now build in a 16%/13% YoY revenue growth V/s 19%/16% earlier), lower currency resets to ~Rs 49.5/$ for FY13 (V/s Rs 48/$ earlier) coupled with Q3 beat drive sharp 16%/6% raise in FY12/13E earnings to Rs 8.5/8.0 respectively (V/s Rs 7.3/7.5 respectively). Despite earnings beat, we see little reason to be enthused by Mah Satyam's performance. Retain HOLD, TP unchanged at Rs 80," says Emkay Global Financial Services research report.  

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