Hold Sasken; target of Rs 120: PINC Research

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Hold Sasken; target of Rs 120: PINC Research

PINC Research has recommended hold rating on Sasken Communication Technologies with a target of Rs 120, in its July 25, 2011 research report.

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PINC Research has recommended hold rating on Sasken Communication Technologies with a target of Rs 120, in its July 25, 2011 research report.

"Sasken's revenue grew 2.1%QoQ to USD29mn with 3.2%QoQ growth in IT services (~92% revenue contribution). Nokia business on existing platform will continue till December but there might be downside to that as well. PAT was Rs107mn (43%QoQ decline and EPS was Rs4 (38.6%QoQ decline)."

"Overall revenue grew 1.2%QoQ to Rs1,300mn, slightly ahead of expectation. The EBITDA margin declined ~86bpsQoQ to 12.4% largely due to higher onsite revenues. Products' revenue declined due to weakness in Japan and the management has indicated that it should maintain a revenue run-rate of USD1.8- 2mn for the quarters ahead. EMEA revenue (44% contribution) grew 6.9%QoQ while US revenue (18% contribution) grew 14.8%QoQ. India revenue (29% contribution) declined 4.5%QoQ. Top 5 clients' revenue increased 2.4%QoQ and top 10 clients' revenue grew 9.8%QoQ. Non-top 10 clients' revenue (23.6% contribution) declined 17%QoQ. Onsite revenue for IT services grew 9.8%QoQ but there is little visibility. The attrition rate (LTM) declined 90bpsQoQ to 34.4%. The utilisation rate (including trainees) increased 270bpsQoQ to 64.8%. Net decline of 95 employees taking total count to 3,413."

"There is no clarity on the sustenance of the existing business from Nokia. Also, the smaller clients have shown decline which adds to revenue concern and reduces visibility on sustainable revenue run rate. Q2 will have margin pressure due to wage hike. Continued high attrition adds to execution issues and loss of talent. Though it has cash and equivalents of Rs1,880mn but lack of certainty from top clients and poor growth from smaller clients reduces revenue visibility. Downgrade to HOLD recommendation with a target price of Rs 120 based on 7x FY13E earnings," says PINC Research report.

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To read the full report click on the attachment