Mahindra Satyam (Q3 FY13)

India Infoline News Service | Mumbai |

Mahindra Satyam’s Q3 FY13 dollar revenues of US$356mn (+0.6% QOQ) were largely in-line with expectations.

CMP Rs120, Target Rs136, Upside 13.3% 
  • Mahindra Satyam’s Q3 FY13 dollar revenues of US$356mn (+0.6% QOQ) were largely in-line with expectations. On a constant currency terms, the revenues were flat qoq with a 1.5% sequential increase in volumes. Amongst the key businesses, BPO growth was robust at 18%+ qoq in dollar terms. On the other hand, IT services growth was flat mainly due to seasonal furloughs/holidays as well as slight delay in ramp-ups of deals. 

  • Within the verticals, both manufacturing and Tech,Media & entertainment de-grew 2.3%/4.5% respectively on a sequential basis. On the other hand, BFSI and retail verticals were flat qoq. Amongst the geographies, Europe (+9.7% qoq) and RoW (+4.9%qoq) drove the growth while Americas de-grew by 4.9% sequentially. From clients’ perspective, Non Top-10 client bucket was the key contributor to the revenue growth with 4% qoq improvement in revenues.

  • The OPM performance for Mahindra Satyam came in better than expected remaining flat qoq at 21.6% versus our estimate of a 50bps correction. The impact of higher sub-contractor costs as well as one-off increase in technical services costs was offset by reversal of Rs335mn of direct expenses on completion of long term incentive program. Forex fluctuations resulted in a gain of Rs336mn compared to a loss of Rs859mn last quarter. Company also expensed out its liability towards the Aberdeen UK case (US$69mn) as indicated in the Rs2.94bn exceptional item. On a pre-exceptional basis, net profit was in-line with estimates.  On the employee front management alluded to sustained improvement in employee pyramid with 0-3year experience employee bracket being 33% of the total base versus 19% two years back. Employee additions were tepid and attrition was stable at 13% in Q3 FY13.

  • We believe that management commentary has improved. Comments on improving deal pipeline/ participation as well as strong deal wins during the quarter (~US$200mn TCV) are comforting. Expectation of release in pent-up discretionary budgets would further reassure improving momentum but we will wait for further confirmation. Company has guided addition of 2000 freshers in coming year with rest of the requirement expected to be satisfied on a need basis.

  • We continue to be positive on Satyam’s inherent strength in Manufacturing/BFS amongst verticals Enterprise solutions/BI Analytics within services. Improving deal pipeline/participation as well visibly better management commentary on demand environment validates our stance. Synergies with Tech M are also becoming evident with increasing traction on mobility related deal traction. Legal liabilities too have subsided materially post the current quarter payout. We marginally increase estimates and mark-up our 9-month TP to Rs136. Maintain BUY. 

Result table
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Net sales 19,395 19,384 0.1 17,181 12.9
Operating profit 4,184 4,173 0.3 2,781 50.5
OPM (%) 21.6 21.5 5 bps 16.2 539 bps
Depreciation (361) (428) (15.6) (385) (6.2)
Interest (33) (29) 11.3 (27) 20.7
Other income 1,111 3 - 1,513 -
PBT 4,901 3,719 31.8 3,881 26.3
Exceptional items (2,940) -   -  
Minority interest (38) (15) 160.3 (7) 442.9
Tax (1,123) (925) 21.4 (790) 42.1
Effective tax rate (%) 22.9 24.9 - 20.4 -
Adjusted PAT 3,740 2,794 33.9 3,091 21.0
Adj. PAT margin (%) 19.3 14.4 487bps 18.0 129 bps
Reported PAT* 800 2,779 (71.2) 3,084 (74.1)
EPS (Rs) 0.7 2.4 (71.2) 2.6 (74.1)
 Source: Company, India Infoline Research
*reported PAT impacted by one-time settlement of Aberdeen UK suit
 
Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues (Rs m) 63,956 77,409 84,215 92,145
yoy growth (%) 24.3 21.0 8.8 9.4
Operating profit 10,213 16,750 17,760 18,788
OPM (%) 16.0 21.6 21.1 20.4
Pre-exceptional PAT (Rs mn) 11,940 13,457 14,024 14,719
Reported PAT (Rs m) 13,034 10,516 14,024 14,719
yoy growth (%) - 12.7 4.2 5.0
         
EPS (Rs) 11.1 8.9 11.9 12.5
P/E (x) 1
 

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