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: Other income powers bottomline - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 24, 2001

    Satyam: Other income powers bottomline

    Satyam has posted a sequential growth of 4% in topline and a rise of 10% in net profits for 2QFY02. This translates to a YoY growth of 57% in revenues and a 100% rise in bottomline. However, this significant rise in the bottomline is due to a large other income figure. If the other income figure were assumed to be same as 1QFY02 (Rs 91 m), the net profit figure would in fact, show a sequential dip of 4%.

    (Rs m) 1QFY02 2QFY02 Change
    Sales 4,119 4,266 3.6%
    Other Income 91 269 194.6%
    Expenditure 2,630 2,794 6.2%
    Operating Profit (EBDIT) 1,489 1,472 -1.1%
    Operating Profit Margin (%) 36.2% 34.5%  
    Interest 82 7 -91.6%
    Depreciation 229 293 27.9%
    Profit before Tax 1,269 1,441 13.5%
    Tax 55 100 83%
    Profit after Tax/(Loss) 1,215 1,341 10.4%
    Net profit margin (%) 29.5% 31.4%  
    Diluted number of shares (m) 314.3 314.3  
    Diluted Earnings per share* 15.5 17.1  
    P/E (x)   9.6  

    The operating margins have declined as per expectations. This could be due to pricing pressure the company has been facing. While the company has managed to keep a tab on its employee costs, it is the operating and administrative expenses that have taken a toll on the margins. The operating and administrative expenses have jumped by 16% sequentially. Also, the interest costs have shown a sharp dip but this effect has been offset by the steep rise in taxes.

    According to the consolidated numbers Satyam has again slipped back into a loss. This is due to increased losses of subsidiaries and joint ventures. This might negatively impact the stocks valuations. However, this includes a one time writing off Rs 5,296 m towards impairment of goodwill and other acquisition costs in Sify’s books. If this effect is eliminated by adding back 52% of Rs 5,296 m (as Satyam has a 52% stake in Sify) the subsidiaries would have posted a loss of Rs 302 m. Taking this into account the company’s net gain under US GAAP would have been Rs 947 m.

    (Rs m) 1QFY02 2QFY02 Change
    Net profit as per Indian GAAP 1,204 1,359 12.9%
    Deferred Stock Compensation charges (136) (119) -12.7%
    Amortization of Goodwill (51) (52) 2.3%
    Loss of Susidiaries & Joint Venture (545) (3,056) 460.4%
    Other accounting differences (71) 61 -185.6%
    Total US GAAP Adjustments (803) (3,166) 294.2%
    Net Income as per US GAAP 400 (1,807) -551.4%

    The company managed to add to 24 new clients during the quarter. The new clients added include names like Novartis, Hitachi Data and Holden (GM). However, the company client concentration has increased with the contribution from top ten clients moving up from 48.3% to 52.0%. The contribution of revenues from onsite services increased to 45.1% compared to 41.3% in 1QFY02. The increase in the contribution of onsite revenues could have taken a toll on the company’s operating margins.

    Satyam’s software design & development business along with the engineering design showed a sequential decline. The company continued to show an increase in business from areas like implementation of software packages like SAP and software maintenance. The implementation business showed a strong growth of 72% sequentially. During the quarter, Satyam won a major contract from Unilever. The broad domains that Satyam will address will include CAD/CAM/CAE, supply chain management, ERP (enterprise resource planning) and e-commerce areas. With SAP implementation possibly being a big chunk of the project the revenues have shown a jump.

    % Contribution to revenues 1QFY02 2QFY02 Change
    Software design and development 58.8% 52.2% -8.2%
    Software maintenance 29.7% 32.2% 12.0%
    Packaged software implementation 7.1% 11.8% 71.9%
    Engineering design services 4.3% 4.0% -5.7%

    The geographic mix changed in favour of the US and Europe. The European markets that in 2QFY02 showed a strong growth of 24% accounted for 9% of revenues. However, the US markets continued to be the most dominant, accounting for 78% of the revenues. Japan and the rest of world showed de-growth accounting for 2% and 11% of the revenues respectively.

    Satyam expects to post a top line growth in the range of –2% to 1% for 3QFY02. The company has given a very narrow range for the topline. This could indicate a high degree of visibility. For the net profits, the company is expecting a sequential drop of 20% to 25%. However, excluding the large other income component, the dip works out to be in the range of –6% to –0.3%. This could be due the increased pressure on billing rates. Satyam has been ramping up business from areas like maintenance and package implementation that have lower margins.

    The company has toned down its guidance for the FY02 bottomline. The growth in net profits for FY02 is now expected to be in the range of 37% to 41% compared to 47% to 51% given previously. The net profit figure for FY01 is excluding the effect to extra-ordinary items. The company expects a topline growth of 30% to 33% in US$ terms. Earlier Satyam had given a topline guidance of 40% for FY02. However, if the company beats its topline expectation of Rs 4,300 m for 3QFY02 it needs only a 2% sequential growth in 4QFY02 to clock a topline growth of 40%.

    While Satyam might meet its topline growth estimate of 40%, the margins are a cause for concern. This is because, the kind of businesses Satyam has been taking up i.e. maintenance and package implementation, have lower margins. Thus, bottomline growth will be a concern. On the positive front, losses from subsidiaries continue to decline and if the subsidiaries break even the stock may see a significant upside.

    The results are more or less in line with market expectations and the company’s guidance. At the current stock price of Rs 164, the stock is trading at a P/E multiple of 10 times its 2QFY02 annualised earnings. The results are unlikely to have much of an impact on the valuations and the stock will be range bound.



    Equitymaster requests your view! Post a comment on "Satyam: Other income powers bottomline". 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...

    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


    Jul 3, 2013 (Close)


    • 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