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PN Vijay

Investment Advisor

5.30 AM Jan 1st 1970

Mahindra Satyam

BSE ID : 500376     NSE ID : SATYAMCOMP

RECOMMENDED PRICE 101.75

PEAK FROM RECO 131.20 28.94%

CURRENT PRICE 115.30 Resource id #15

Mahindra Satyam is a leading information, communications and Technology Company providing top-class business consulting, information technology and communication services. The company has had an eventful past. Mahindra Satyam is currently trading at undemanding valuations of ~10x FY13E EPS and ~9x FY14E EPS. At the CMP of Rs.102, we recommend buying it with a target price of Rs.140.

Mahindra Satyam

 

Company Overview:

Mahindra Satyam is a leading information, communications and Technology Company providing top-class business consulting, information technology and communication services. The company has had an eventful past. Till a few years ago it was considered one of the top IT companies of the country. However in Jan 2009, a major scam was discovered in the company by the owners and this led to a dramatic fall in the value of the shares. Then under a Government supervised bidding process, the company changed hands and was taken over by Tech Mahindra. It is now doing well and will soon merge with Tech Mahindra

Financial Analysis:

Mahindra Satyam reported healthy Q2FY13 numbers with the margins being a big positive surprise. Q2FY13 US$ revenues grew 3.5% QoQ to USD 354 million ($342 million in Q1) while that in rupees grew 3.1% QoQ to Rs.1938 Crs. PAT declined 21% QoQ to Rs.278 Crs vs. Rs.352.3 Crs in Q1. Sequential PAT decline was primarily due to forex loss of Rs.86 Crs in Q2 vs. Rs.67 Crs gain in Q1.

EBITDA margins were ahead of street estimate and declined a modest 15 bps QoQ despite the wage hike impact. It stood at 21.6% in H1FY13 vs 16% in FY12. The impact of wage hike on margins was more than offset by operational efficiencies.

Positives:

We like the stock because of the following reasons –

The proposed Tech Mahindra - Satyam merger has been approved, the ratio being 1:8.5.
 
We believe the joint go-to-market strategy with Tech Mahindra and Mahindra Group expertise, particularly in the manufacturing space, will drive further growth.

The company has successfully addressed its key concern areas in the past three years of client mining, employee retention, margin expansion, and dispute resolution.

Robust deal pipeline with new 38 clients during the quarter.

It enjoys Healthy margins and strong execution.

Valuations:

Q2FY13 was a quarter of healthy operating performance and strong execution for Mahindra satyam. Going forward, the healthy revenue growth and sustained EBIT margins should continue. Mahindra Satyam is currently trading at undemanding valuations of ~10x FY13E EPS and ~9x FY14E EPS. At the CMP of Rs.102, we recommend buying it with a target price of Rs.140.

Disclaimer: The stock finds a place in client and personal portfolios. Investors are requested to take the advice of a qualified Investment Advisor before making any investment.

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