Accumulate Mahindra Satyam; target of Rs 98: Dolat Capital

Dolat Capital is bullish on Mahindra Satyam and has recommended accumulate rating on the stock with a target of Rs 98 in its August 2, 2012 research report.

“Satyam has been delivering improved performance quarter after quarter. It has made commendable progress in its financial performance in FY12 with a 24% topline growth and 730bps improvement in the operating profitability. The pipeline continues to be robust (5 win in the quarter) and the strong hiring (added 2643 employees in Q1FY13 includes 1200 on acquisition) indicates sustained business traction. Mahindra Satyam reported Q1 FY13 numbers inline with our estimates with a Revenue growth of 12.8% QoQ at Rs 18.8bn (Revenue in USD 342mn inline with DE of USD 341.5mn). Constant currency growth was about 5% QoQ.”

“IT services revenues grew 11% QoQ in Rs terms (flat in USD terms). However; BPO grew substantially by 70% QoQ driven by consolidation (partial during the quarter) of vCustomer revenues to the tune of USD 2mn in the customer. MSAT acquired 100% of vCustomer BPO operations for USD 27mn (annualized run rate of USD 16mn). Operating profits grew by 43% QoQ (410bps gain QoQ to 19.1%) as it benefitted from faourable fx gains by 300bps and further more on efficiency gains in SG&A. PAT for the quarter degrew by 34% QoQ at Rs 3.5bn ahead of our estimate of Rs 3.2bn as it benefited from Rs 670mn on translation gains. It would offer wage hikes effective the month of July.”

“We believe that the settlement of the various claims and strong recovery in the financial performance would help it build in investor interest. 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-Satyam and Tech Mahindra- and will lead to a re-rating of the stock. We maintain our positive view with an accumulate rating on the stock with a target price of Rs 98, valued at 8x of its FY14E earnings of Rs 12.3 per share,” says Dolat Capital research report.     

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