KRChoksey is bullish on Mahindra Satyam and has recommended accumulate rating on the stock with a target price of Rs 124 in its February 01, 2013 research report.
"Mahindra Satyam, revenue (flat growth on QoQ basis) and EBITDA margin (improved by 5 bps QoQ) were in-line with our expectation in Q3 FY13. Revenue growth was adversely impacted by lower working days, furloughs announced by some major clients and delay in deals ramp-up on account of year ending. However, the management expects revenue growth to bounce back in Q4 FY13E supported by ramp-up of delayed projects and deals recently signed. Moreover, they sounded confident of maintaining EBITDA margins within narrow range supported by operating levers such as widening of employee pyramid base, improvement in utilization rate and rationalization of SG&A expenses. Taking into account improvement in demand environment and expectation of pick-up in discretionary projects in FY14E; we believe Satyam will be huge beneficiary considering its relatively higher dependence on these projects (ERP share in total revenue is 40% plus) and the same is not reflected in consensus revenue estimates for FY14E. Further, the company is available at attractive valuation compared to peer sets.
Revenue growth was flat in Q3 FY13 on QoQ basis in line with our expectation. The company registered strong traction in government segment leading to increase in emerging vertical by 29% QoQ in Q3 FY13; whereas manufacturing and telecom registered declined on account of furloughs and lower number of working days.
EBITDA margin improved by 5 bps QoQ to 21.5% in Q3 FY13 against our estimates of dip in EBITDA margin by 2 bps QoQ. The margin came marginally higher than our expectation primarily due to reversal of bonus payment to employees to an extent of Rs.33.6 crore which was partially offset by one off expenses (i.e. technical fees) of around $4 million in Q3 FY13. The company reported forex gain of Rs.34 crore against our projection of Rs.1 crore which resulted in higher than expected net profit.
The company has entered into settlement with Aberdeen UK claimants for $68 million in Q3 FY13. As per the management this was the last litigation against the company outside India. We believe, this development should be taken in positive stride considering improvement in demand environment and the management bandwidth engaged in settlement of litigation now can be spared for chasing deals and mining clients.
Valuation and view: Taking into account improvement in demand environment and expectation of pick-up in discretionary projects in FY14E; we believe Satyam will be huge beneficiary considering its relatively higher dependence on these projects and the same is not reflected in consensus revenue estimates for FY14E. Further, the company is available at attractive valuation compared to peer sets. Considering the same we maintain our "ACCUMULATE" recommendation on the stock with a price target of Rs. 124 by assigning multiple of 11 times to its FY14E EPS of Rs. 11.3," says KRChoksey research report.
Institutional holding more than 40% in Indian cos
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