Mahindra Satyam’s Net Up 468% In Q4

Mahindra Satyam announced its Q4FY13 results on May 16, 2013. The result has been moderate on the revenue front and the company has taken a hit at the operational level. This has caused stock prices of Mahindra Satyam to see some selling post result announcement.

In dollar terms, in Q4FY13, revenues of Mahindra Satyam grew by 0.84% to USD 359 million on a sequential basis. In constant currency terms, sequential revenue growth was 1.98%. However, in rupee terms, revenues declined by 0.21% to Rs 1936 crore when compared to Q3FY13.

In Q4FY13, the bottomline of Mahindra Satyam grew by 467.50% to Rs 454 crore. However, this was on account of exceptional items causing a massive downfall in the previous quarter and a surge in its profits in this quarter.

In Q3FY13, Mahindra Satyam reported a net profit of Rs 79.98 crore (a sequential drop of 71.22%) on account of settlement of claims brought under law for certain allegations of fraudulent misrepresentations said to have made by the former management of the company that resulted in losses suffered by investors that had invested in Satyam’s common stock and ADS.

In Q4FY13, Mahindra Satyam reported a one-time exceptional expense reversal of Rs 134 crore, leading to a boost in net profit of 467.50% to 454 crore.

Although there have been fluctuations in the profitability of Mahindra Satyam that are a result of some rare items, it is clear that Mahindra Satyam’s profitability in Q4FY13 has been negatively impacted. The company reported a sequential EBITDA decline of 7.03% to Rs 389 crore. This translates into a reduction in the EBITDA margin by 148 basis points to 20.09%.

On the client front, the position of Mahindra Satyam looked quite impressive. In Q4FY13, the company’s new clients (gross) jumped to 60 taking the total number of active clients to 385. These figures stood at 33 and 368 respectively in Q3FY13.

In the quarter under review, the company also acquired Complex IT, one of the largest SAP consulting providers in Brazil. The acquisition will help Mahindra Satyam develop solutions for the Enterprise Solutions market in Latin America for large manufacturing, financial and consumer service companies.

The management of Mahindra Satyam said that its merger with Tech Mahindra is at its penultimate stage. It has been approved by the Bombay High Court and is awaiting the Andhra Pradesh High Court approval. Internally, the integration of the two companies and their operations has been taking place successfully.

This merger is expected to create a robust consolidated entity with revenues of USD 2.4 billion, 75000+ employees, 350+ clients and presence in 50+ countries. The entity will combine Tech Mahindra’s expertise in mobility and systems integration ad Mahindra Satyam’s diverse set of clients and allow humongous cross-selling opportunities and upward movement in value proposition.

Although the result of Mahindra Satyam has not been very impressive, the company’s client book, its inorganic growth strategy and its merger with Tech Mahindra make us maintain a positive outlook on the company.