Mahindra Satyam Q1 EBITDA margin seen up 33 bps QoQ

Mahindra Satyam is set to announce its results for the June quarter on Thursday. Analysts on an average expect the profit after tax to decline by 51% quarter-on-quarter to Rs 273 crore during the quarter as the previous quarter was impacted by extra ordinaries like tax write back and reversal on impairment of losses. 

Revenues (in dollar terms) are seen going up by 0.8% to USD 340 million and (in rupee terms) seen up by 10.9% to Rs 1,848 crore during the same period.

Earnings before interest, tax, depreciation and amortisation (EBITDA) are likely to increase to Rs 330 crore from Rs 292 crore QoQ. EBITDA margin is seen rising by 33 basis points QoQ to 17.85% in the first quarter.

Analysts feel the company needs to win larger deals to go back in the bigger league. Even the company managed to settle its legal claims at lower price - the recent being Aberdeen that settled at USD 12 million as against claim of USD 68 million on June 30th. Previously, it settled class action law suit of USD 125 million and SEC at USD 10 million.

Now there is only one pending case, which is a claim of USD 150 million by Aberdeen Asset management.

Expectations

Analysts expect constant currency revenues (in dollar terms) higher at 1.5-2%. Even the margins are likely to be slightly higher due to rupee depreciation and no wage hike.

Company had deferred wage hikes. Now that is likely to be effective from October 1st. Pay hikes will be less than 10%.

In June, the management had said (on DowJoneswire) they were chasing 17-18 large outsourcing deals in US.

Mahindra Satyam has seen improving financials. In the financial year 2011-12, dollar revenues rose by 16% (while the Infosys at 15.8%) and the company had added around 125 new clients.

In the fourth quarter of FY12, exit margins stood at 17.5% as against 6.5% in third quarter of FY11, an increase of 11% in six quarters.

EBITDA margin improved to 16% in FY12 as against 8.7% in FY11.

Post fourth quarter, the management remained positive on FY13, suggesting higher than industry average (11-14%) growth amidst a robust order book. It had hinted at diminishing revenue visibility owing to a sluggish demand environment.

But it remained cautious, due to (a) longer deal conversion periods and (b) increased top management scrutiny that expands decision making cycles.