Mahindra Satyam (Q2 FY13)

India Infoline News Service | Mumbai |

Q2 FY13 dollar revenues for Mahindra Satyam grew 3.5% qoq to US$354mn coming in marginally better than our expectation (3% qoq growth).

Mahindra Satyam (Q2 FY13) – BUY
CMP Rs108, Target Rs119, Upside 10.6%

  • Q2 FY13 dollar revenues for Mahindra Satyam grew 3.5% qoq to US$354mn coming in marginally better than our expectation (3% qoq growth). In constant currency terms the revenues grew 3.2% qoq with volumes increasing 2.8% sequentially. On an organic basis, the company grew near 3% with Vcustomer contributing US$4mn to the revenues (US$2mn last quarter). In rupee terms the revenues grew 3.1% sequentially to Rs19.4bn.
  • Within the verticals, the growth was led by Retail/T&L, BFSI and Manufacturing which grew 12.8%, 8.8% and 6.4% respectively. The growth across geographies was decent with developed markets of US and Europe growing 5.3% and 3.4% qoq in dollar terms. From the client perspective, Top 5 clients grew the fastest at 7.2% qoq with Top/Top 10 clients growing in-line of the company average.  Strong client mining has consistently led to Top/Top5/Top10 clients growing above company average in the last four quarters (CQGR of 2.5-4% for the top clients versus ~2% for the company).
  • We were pleasantly surprised by the better than expected margin performance in Q2 FY13. Against our expectation of 160bps correction (due to salary hikes), the OPM corrected only by 15bps to 21.5% supported by strong efficiency improvement. Lower sub-contractor costs, absence of visa costs helped to cushion the salary hike impact (~100bps). Though the tax rate was lower than expected, significantly higher forex losses of ~Rs860mn resulted in marginally lower than expected PAT of Rs2.78bn. On the employee front, the net additions were decent at ~2.2% of Q1 FY13 base. With freshers additions of 600 during the quarter, bulge mix remained largely steady with 0-3year experienced employee ratio being 32% (33.7% last quarter). Attrition improved impressively to 13.1% from 14.1% last quarter.
  • We liked the Q2 FY13 results especially from the margin performance perspective which beat our expectation impressively. Client mining as well as demand from key verticals/services (viz. Manufacturing, enterprise solutions, analytics) also continued to be decent. While the management maintained its cautiously optimistic stance, we remain enthused by improved deal participation as well as higher success rates (compared to FY12). Subsequently we maintain our 9% dollar revenue CAGR over FY12-14E. We maintain BUY with a 9-month TP of Rs119.
Result table
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Net sales 19,384 18,799 3.1 15,777 22.9
Operating profit 4,173 4,075 2.4 2,417 72.7
OPM (%) 21.5 21.7 (15) bps 15.3 621 bps
Depreciation (428) (494) (13.3) (396) 8.0
Interest (29) (31) (6.1) (20) 43.6
Other income 3 1,339 - 967 -
PBT 3,719 4,889 (23.9) 2,968 25.3
Exceptional items - -   -  
Tax (925) (1,326) (30.2) (578) 60.0
Effective tax rate (%) (24.9) (27.1) - (19.5) -
Adjusted PAT 2,794 3,563 (21.6) 2,389 16.9
Adj. PAT margin (%) 14.4 19.0 (454)bps 15.1 (73) bps
Reported PAT 2,779 3,523 (21.1) 2,382 16.7
EPS (Rs) 2.4 3.0 (21.1) 2.0 16.6
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Revenues (Rs m) 51,450 63,956 77,414 84,327
yoy growth (%) (6.1) 24.3 21.0 8.9
Operating profit 4,551 10,213 16,420 16,751
OPM (%) 8.8 16.0 21.2 19.9
Pre-exceptional PAT (Rs mn) 4,942 11,943 12,750 13,117
Reported PAT (Rs m) (1,469) 13,037 12,750 13,117
yoy growth (%) - - 6.8 2.9
         
EPS (Rs) (1.2) 11.1 10.8 11.1
P/E (x) - 9.7 9.9 9.7
Price/Book (x) 7.3 4.2 3.0 2.3
EV/EBITDA (x) 21.8 9.6 5.9 5.8
RoE (%) 27.4 50.7 35.2 26.7
RoCE(%) 18.3 35.3 35.7 28.8
Source: Company, India Infoline Research
 
 

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