Satyam Computer Services (SCS IN, INR 448, maintain Buy)
Satyam's Q4FY07 results were ahead of our expectations. Revenues, came in at INR 17.8 bn, up 7.1% Q-o-Q and 35.4% Y-o-Y while net profit, at INR 3.9 bn, was up 16.7% Q-o-Q and 38.3% Y-o-Y. Higher other income and lower depreciation have contributed to the better-than-expected profits. EBITDA margins at 23.1% (down by 160 bps Q-o-Q) resulted in a flat EBITDA over Q3FY07.
A steady pace of client addition over the past several quarters with an increasing number of clients being migrated in the USD 1-5 mn category augurs well for the company. The company has increased its million dollar client base by over 20% and its USD 10 mn plus client base by 30% in FY07 over FY06. Though the growth rate in the top 5-client category has been slightly volatile over the past three-four quarters, the top 6-10 client category has been ramping up well for the company. The company's focus on consulting and enterprise business solutions and engineering solutions is paying off, with both registering double-digit growth.
Satyam has issued positive guidance for FY08 for revenues and EPS growth of 28-30 and 27-29% respectively in USD terms as per US GAAP, revenues and EPS growth of 20-22% and 18-20% respectively as per consolidated Indian GAAP. The difference is due to the assumption of a 6% Rupee assumption factored in.
At INR 448, the stock trades at a P/E of 16.9x and 13.6x on our FY08E and FY09E earnings respectively. We maintain our 'BUY' recommendation.
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