Wednesday, May 23, 2012


Mahindra Satyam reported Q4FY12 numbers, which were marginally  above our estimates. Reported revenues/PAT of | 1666 crore/| 534 crore  were in line/ahead of our | 1653 crore/| 217.1 crore estimate. US$ revenues grew 3.7% QoQ while volumes grew ~ 1.9% QoQ. Q4 EBITDA  margins improved 132 bps QoQ while FY12 EBITDA margins improved  800 bps YoY. Management commentary suggests deceleration in  discretionary spending in the US and Europe and could likely pressure  pricing in the near term. Consequently, we maintain our HOLD rating.

  Earning summary
Q4FY12 US dollar revenues grew 3.7% QoQ to $337 million ($325 
million in Q3) while those in rupees declined 3% QoQ (3.8% decline estimate) to | 1666 crore (| 1653 crore). PAT increased by 73.2% to | 534.2 crore from | 308.4 crore in Q3 and above our | 217.1 crore estimate. Note that reported PAT was aided by exceptional items (| 109.4 crore) and tax write back (| 91.3 crore). Quarterly performance  was also aided by 10% reduction in the operating expenses to | 353.9 crore (| 399.1 crore in Q3) led by cost rationalisations.

  Operating metric highlights
Across geographies, revenues from North America (51% of Q4FY12 
revenues), Europe (24%) and rest of world (25%) grew 5.8% QoQ,  declined 0.5% QoQ and grew 3.7% QoQ, respectively. Telecom, media and entertainment grew 14.6% QoQ, whereas manufacturing, 

retail and healthcare grew 3.7% each. Note that BFSI had a  sequential decline of 6.2%QoQ.

We expect FY13E US$ revenues to grow 11% while rupee revenue/EPS could grow/decline 13%/18%, respectively. Further, we model revenues/EPS to grow 12%/8% in FY14E. This translates to revenue  CAGR of 16% during FY11-14E period. Further, we expect EBIT margins  to improve by 120 bps in FY13E. We assign a lower target PE multiple of 8x (our CY13E estimate) vs. 9.1x (FY13E estimate) to account for the  mediocre earnings growth. Consequently, we value the company at 8x our CY13E EPS estimate of | 9.6 and maintain our | 75 target price.