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Edelweiss report on Satyam Computer

Thursday, April 5, 2007

Edelweiss Research has come out with pre earnings report on Satyam Computer. It has recommended buy rating on the stock.

Expected numbers

Edelweiss expects Satyam Computer to close Q4FY07 with revenues of INR 17.6 billion (Q-o-Q growth of 6.0%) and net profit of INR 3.5 billion (Q-o-Q growth of 3.3%).

Traction from key clients will be a key progress point

Across the past three quarters, revenues from the top-5 and top-10 clients have grown at 2.9% and 4.3%, respectively, significantly behind that of the non-top 10 clients at 10%. We expect to see signs of further mining of the top-5 client base to improve and await commentary from the company in this regard.

Non-cash expenses will accrue

Satyam has indicated that its recently issued RSUs to senior management and key employees will necessitate a charge of USD 4.5 mn in Q4FY07, factored in by us. The company expects margins to be impacted for the quarter on account of this. Notably, this charge will be recognized and incurred through FY08 and FY09 as well.

Growth momentum in enterprise integration application (EAI)

Satyam is a leader in the SAP practice with long relationships across diverse industries. With nearly 3,500 people in this practice, Satyam has the most dominant presence among Indian vendors. Additionally, Satyam’s presence is almost equally distributed across providing both functional and technical implementation services at about 50% each.

Momentum in winning large multi-year, multi-million orders

Satyam recently announced a USD 200 mn multi-year contract win from Applied Materials. Satyam will provide application development, maintenance, and support (ADMS) and business transformation core technology services to Applied Materials through a managed services delivery model. The notable feature of this project is that it is entirely fixed-price attesting the company’s confidence in taking on fixed-price projects of this magnitude.

Valuations

At CMP of INR 446, the stock trades at P/E of 16.8x and 13.6x and EV/EBITDA of 12.1x and 9.1x for its FY08E and FY09E earnings, respectively. We retain buy recommendation.

Download Full Report HERE including Mid-cap IT Sector

Above is the briefs of the full report download link

Posted by FR at 7:21 PM  

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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.