Buy Mahindra Satyam; target of Rs 135: Dolat Capital

“Mahindra Satyam has been delivering improved performance quarter after quarter. It has made commendable progress in its financial performance with 8 quarter Revenue CQGR of 4 percent and 1300bps improvement in the operating profitability. The pipeline continues to be robust with improved deal participation and success ratio both on the RTB and discretionary side. We maintain our positive stance on MSAT/TechM in view of impending merger and likely rerating on the stock.”

“Mahindra Satyam reported Q4 FY13 numbers broadly inline with our estimates with a 1 percent growth in USD revenues at USD 356mn inline with DE of USD 358mn. Volumes grew by 2 percent QoQ, however the realizations were soft owing to adverse cross currency movement. IT services revenues were up by 1.2 percent in QQ in Rs terms owing to sustained new deal addition. BPO degrew by 27 percent QQ as the revenues boosted by Holiday weekend revenues in Q3 were absent during the quarter. It has set up its large deals focus group to ensure better success ratio in the deal wins. It is confident of benefiting from likely pent up demand in the discretionary spending based on its strong positioning and expect to exceed NASSCOM 14 percent revenue growth outlook for FY14. Operating profits degrew by 14 percent QQ (280bps decline QQ to 16.9 percent) owing to smoothening of BPO revenues during the quarter and on account of one time charge on change in policy on providing for leaves/gratuity contingencies. It has gained from a reversal of impairment provision of subsidiary of about Rs 135bn as against outgo on Aberdeen settlement in Q3 leading to a growth of 468 percent in reported PAT. PAT for the quarter stood at Rs 4.5bn. Adjusted PAT down 7 percent QQ and was below DE.”
“We believe that the settlement of the various claims (Post Aberdeen only claims of Indian Income Tax authority are due) and strong recovery in the financial performance would lead to re-rating 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 strong re-rating of the stock. We maintain our positive view with an BUY rating on the stock with a target price of Rs 135, valued at 11x of its FY14E earnings of Rs 12.5 per share (TechM TP: Rs 1280),” says Dolat Capital research report.     Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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