X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Satyam: Betters guidance and expectations - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 21, 2002

    Satyam: Betters guidance and expectations

    Satyam has posted a sequential decline in net profits of 11% for 3QFY02. This is significantly lower compared to the company’s guidance of a 20% drop. On a YoY basis, Satyam’s net profits have risen by 36%. The topline has shown a healthy 2% sequential growth. This too is above the company’s guidance of about a 1% rise. On a YoY basis, the revenues have grown by 33%.

    As expected the margins have declined by 120 basis points sequentially. This is due to the intense pricing pressure the sector has been facing. Others like Wipro and Infosys have managed to maintain margins by cutting corners.

    (Rs m) 2QFY02 3QFY02 Change
    Sales 4,266 4,358 2.1%
    Other Income 269 102 -61.9%
    Expenditure 2,794 2,908 4.1%
    Operating Profit (EBDIT) 1,472 1,450 -1.5%
    Operating Profit Margin (%) 34.5% 33.3%  
    Interest 7 5 -35.4%
    Depreciation 293 306 4.6%
    Profit before Tax 1,441 1,241 -13.9%
    Tax 100 47 -53.0%
    Profit after Tax/(Loss) 1,341 1,194 -10.9%
    Net profit margin (%) 31.4% 27.4%  
    Diluted number of shares 314.5 314.5  
    Diluted Earnings per share* 17.1 15.2  
    P/E (x)   18.0  
    *(annualised)      

    As the results are above expectations the stock price is likely to see marginal improvement in valuations, as lot of positives have already been factored in the price. At the current market price of Rs 274, the stock is trading at a P/E multiple of 18x its 3QFY02 annualised earnings.

    For 3QFY02, the consolidated results as per US GAAP indicate a net income of US$ 44 m (Rs 2,099 m) as compared to a loss of US$ 38 m (Rs 1,807 m) in 2QFY02. The loss in 2QFY02 was due to the write off in investments by Sify. Excluding the impact of the write off on Satyam’s financials, the company would have posted a net income figure of US$ 6 m (Rs 302 m). The net income figure of US$ 44 m for 3QFY02, according to US GAAP, includes a one-time gain on sale of stake in Sify (to Govt. of Singapore Investment Corporation in June 2000) and charge against put options for TRW. If these effects are excluded the net profit figure works out to be US$ 19 m (Rs 893 m).

    RECONCILIATION BETWEEN INDIAN GAAP AND US GAAP
    (Rs m) 2QFY02 3QFY02 Change
    Net profit as per Indian GAAP 1,359 1,194 -12.1%
    Deferred Stock Compensation charges (119) (148) 24.3%
    Amortization of Goodwill (52) (51) -1.4%
    Loss of Subsidiaries & Joint Venture (3,056) (290) -90.5%
    Gain on sale of stake in Sify - 1,687  
    Charge off for put options in TRW - (279)  
    Other accounting differences 61 (14) -123.1%
    Total US GAAP Adjustments (3,166) 905 -128.6%
    Net Income as per US GAAP (1,807) 2,099 -216.2%

    The pricing pressure is more evident for onsite and domestic projects. While the billing rates for onsite projects declined by 3% (QoQ), the fall for domestic projects was much steeper at 11%. Onsite billing rates have declined 1% sequentially. Also, the company saw a marginal decline in utilization rates for all onsite, offshore and domestic projects. The contribution to revenues shifted marginally in favour of offshore revenues 48% as compared to 45% in 2QFY02. The contribution from fixed price contracts increased from 25% in 2QFY02 to 28% in 3QFY02.

    The geographic break up of revenues did not change significantly. However, Europe showed a very strong sequential growth of 35%. This offset the loss in revenues from Japan and Rest of the world, which declined by 18% and 14% sequentially. The largest market (US) grew by 1%.

    The maintenance service offering for Satyam showed a decline, while package implementation witnessed strong growth, as seen with other software companies. The numbers are a cause for concern because the major revenues stream of the company design & development and maintenance are showing weakness. This has been offset to some extent by growth in revenues from package implementation and engineering services. However, the contribution of these service offerings are relatively smaller and thus in the future may not be able to offset a sharper drop in revenues from the major revenue streams. Amongst the key verticals banking & finance along with engineering exhibited growth. However, insurance and manufacturing verticals showed a decline.

    Service offerings 2QFY02 3QFY02 Change
    Software design and development 52.2% 49.1% -5.9%
    Software maintenance 32.2% 28.4% -11.8%
    Packaged software implementation 11.8% 16.4% 41.7%
    Engineering design services 3.5% 5.9% 49.4%

    The company, however, has given a very positive guidance for 4QFY02. Satyam expects the topline to grow in the range of 1% to 4.4%. However, the net margins are expected to witness a sequential decline in the range of 10% to 18%. This is on the back of a sharp fall in operating margins, which are expected to decline even further. The numbers indicate that Satyam could be looking at a volume based growth strategy. To capture a larger share of the market the company is looking at the possibility of cutting billing rates further. The 4Q guidance translates to a growth of 41% in revenues for FY02, and a growth in net profits in the range of 47% to 52% (excluding extra ordinary income in FY01).

    Given that the results are above expectations, the stock price is likely to see marginal improvement in valuations, as lot of positives have already been factored in the price. Moreover, the economic scenario in the company’s biggest markets continues to be uncertain. At the current market price of Rs 274, the stock is trading at a P/E multiple of 18x its 3QFY02 annualised earnings.

     

     

    Equitymaster requests your view! Post a comment on "Satyam: Betters guidance and expectations". Click here!

      
     

    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    HCL Tech: Ends FY17 on Expected Lines (Quarterly Results Update - Detailed)

    Jun 29, 2017

    Volvo partnership caps a good year for HCL Technologies.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MAHINDRA SATYAM SHARE PRICE


    Jul 3, 2013 (Close)

    TRACK MAHINDRA SATYAM

    • Track your investment in MAHINDRA SATYAM with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MARKET STATS