Analyst Research Report Snapshot

Title:

Spark Capital: Mahindra Satyam: Yet another strong results with cautiously optimistic market commentary;Maintain ADD at PT Rs 117

Price:

$58.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

01 Nov 2012

Pages:

6

Type:

AcrobatPDF

Companies referenced:

SATY.NS

Available for Immediate Download
Summary:

Mahindra Satyam: Yet another strong results with cautiously optimistic market commentary Mahindra Satyam (MSAT) reported US$ revenue growth of 3.5%, EBITDA margin expanded by 120bps ahead of estimates. MSAT’s deal wins in the US$ 30mn range continues to be strong with management commentary indicates increased number of deal wins. Though deal pipeline has improved sequentially, delay in decision making yields a cautious growth outlook. MSAT’s margins have expanded sharply in last four quarters and we expect the same to slow down in expansion. We retain our positive view though the rally over last 3 months have left limited upside. Retain ADD with a price target of Rs. 117 (vs. Rs. 105) Revenue growth of 3.5% reflects largely organic uplift : The company continued to show steady growth organically with <$4mn revenues contribution from V customer acquisition. The company posted unbeaten numbers in manufacturing and BFSI vertical with 6.6% and 9.0% qoq growth. Geographically, 2QFY13 did see 3.5% qoq growth in European region when compared to negative growth of 5.6% during 1QFY13. The company sounded upbeat with the addition of 6 marquee customers. Margin surprise exists and we expect it to continue: EBITDA Margins have been on increasing trend for the last seven quarters. We believe the operation margin expansion have been on the back of steady focus on improving fresher mix (currently at 33%) and continuous effort to rationalize administrative cost . We believe margins would remain stable on a constant currency basis as the benefits from improving employee pyramid would be gradual from here on. Further with merger with Tech Mahindra around the corner, we expect scale led synergies to benefit margins over the next 18 months. Deal wins and execution strength gives us comfort in our number: We are modeling FY13 revenue numbers at ~10% factoring in volume growth as evidenced from deal win commentary and management’s ability in higher win ratio in the market given their historic strength in EAS and manufacturing vertical. On the margin front, we believe there is a further scope for rationalizing in SG&A and fresher's addition ~600 next quarter should boost margins up to 20% by FY13 Maintian ADD: We value MSAT by reckoning the swap ratio with Tech Mahindra, whereas Tech Mahindra price target by attaching a 11x multiple on FY14E proforma EPS of Rs. 91.

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