Analyst Research Report Snapshot

Title:

Spark Capital: Mahindra Satyam 3QFY13 results update

Price:

$58.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

20 Feb 2013

Pages:

6

Type:

AcrobatPDF

Companies referenced:

SATY.NS

Available for Immediate Download
Summary:

Mahindra Satyam: Inline results; Retain ADD Mahindra Satyam (MSAT) reported inline 3QFY13 results excluding the exception Aberdeen class action suit settlement. US$ revenues grew 0.6% qoq and 9.5% yoy to US$ 352 mn with EBITDA margin of 21.5% flat qoq and up 540bps yoy. Growth was impacted to furloughs in manufacturing and management expect growth to come back. We expect growth trajectory to improve owing to MSAT strong competence in enterprise application services and manufacturing vertical. With merger process underway we value MSAT as a derivative of our price target on Tech Mahindra yielding a price target of Rs. 130. We value Tech Mahindra at Rs. 1100 arrived by attaching 11x on Dec-14E EPS. Retain ADD Muted revenue growth: 3QFY13 revenue growth was muted owing to high exposure to Manufacturing (declined 2.3% qoq) and enterprise application services (onsite revenues declined 1.4% qoq). Manufacturing continues to be a key driver of growth with YTD revenues up 15.7% highest for the company. Revenues from Americas declined by 4.9% qoq while Europe grew 9.7% qoq. Though sequential growth in Europe is impressive yoy growth continues to be anaemic similar to many others in the sector. One-off’s aid margin: MSAT margin remained flat qoq inspite of furloughs owing to one-off. Employee cost included reversal of provision of Rs. 355mn, whereas Other expenditure included technical cost which impacted negatively. We believe if not for the reversal margins would have been impact negatively. Over the 12 months MSAT has expanded margin impressively over and above the cushion from exchange rate. The key driver has been managing pyramid. Employees with less than 3 years work experience stands at 33% providing scope for further improvement. Management commented that they have made offers to 2,000 freshers for FY14. Retain ADD: MSAT stock over the last 12 months have performed on the back of strong improvement in margins. From here on we expect the ask to be steeper and believe revenue growth would be a key driver. The impending merger with Tech Mahindra would drag organic revenue growth and improvement in the same would be crucial. MSAT as a derivative of our price target on Tech Mahindra yielding a price target of Rs. 130. We value Tech Mahindra at Rs. 1100 arrived by attaching 11x on Dec-14E EPS. Retain ADD

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