Satyam 3QFY01: A curtain raiser - Views on News from Equitymaster

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Satyam 3QFY01: A curtain raiser

Jan 6, 2001

By far the most interesting news on Satyam for 3QFY01 was the US $ 200 m contract its JV, Satyam Manufacturing Technology Inc., got from TRW. Satyam Manufacturing Technology Inc., is a joint venture between Satyam and TRW (76:24). This would mean that the other income figure for Satyam could go up in the near future. The other major event was that it tied up with Ariba for implementing B2B solutions. This move was to consolidate its position in the enterprise applications integration market that has tremendous potential to grow.

Business mix
1QFY01 2QFY01
E-commerce 25.3% 27.1%
Telecommunications software 6.3% 9.9%
ADM* (Legacy and Client Server) 54.5% 48.1%
Engineering 9.1% 8.9%
ERP 4.8% 6.0%
*Application development and maintenance

Satyam has been increasingly changing its business mix in favour of e-business and telecommunications software since the last two quarters. Therefore, the portion of e-business and telecommunications software in 3QFY01 is expected to be higher.

Effort would be to de-risk the geographical revenue mix by decreasing exposure to the United States. Europe is an obvious choice. Satyam has a good presence in the Middle East, which it can hope to consolidate. Satyamís revenues from Japan have been decreasing, which it claims, is on account of recession in the Japanese economy, but the real reason could be very few clients.

Growth
1QFY00 2QFY00 3QFY00 4QFY00 1QFY01 2QFY01 3QFY01E
Sales 24.8% 17.5% 13.3% 15.8% 2.0% 16.8% 15.0%
Operating Profit 2.7% 38.7% 7.8% 11.2% 13.1% 15.4% 15.3%
Net profit* -3.9% 64.5% 19.7% 14.1% 4.9% 29.0% 15.9%
*Other income not included

We are expecting Satyam to continue to grow in line with its past growth rates in 3QFY01. The anomaly in 1QFY01 and 2QFY01 net profit figures are due to high other income figures in 1QFY01 on account of sale of equity shares of Satyam Infoway to the Singapore Investment Corporation.

The numbers
(Rs m) 1QFY00 2QFY00 3QFY00 4QFY00 1QFY01 2QFY01 3QFY01E
Net Sales 1,335 1,568 1,776 2,057 2,334 2,725 3,134
Other Income 33 7 3 11 1,775 114 100
Total Income 1,368 1,575 1,779 2,068 4,109 2,839 3,234
Operating Profit 439 608 656 729 824 951 1,097
Interest 94 102 99 114 114 92 100
Depreciation 147 191 182 190 262 233 313
Net Profit 216 307 362 421 2,205 669 743

The growth in topline YoY would be around 76% and that in bottomline is expected to be 105%. The figures on a QoQ basis would be 15% for topline and 11% for bottomline. Over the year Satyam has been able to hold operating margins, which are comparable to the best in the Industry.

Score card
1QFY00 2QFY00 3QFY00 4QFY00 1QFY01 2QFY01 3QFY01E
Operating margin 32.8% 38.8% 36.9% 35.4% 35.3% 34.9% 35.0%
Tax/PBT 6.5% 4.7% 4.0% 3.4% 0.8% 9.6% 5.1%
Net profit margin* 13.7% 19.1% 20.2% 19.9% 18.4% 20.4% 20.5%
Cash FDEPS (Rs) 1 2 2 2 9 3 4
FDEPS (Rs) 1 1 1 1 8 2 3
P/E (x) FY01E 48
*Other income not included


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