JP Morgan in a report weighs the risk and rewards after the recent liabilities that have arised. However, the company should be able to easily jump the hurdle and here is their take on the same.
Business at Satyam is seeing incremental stability as per recent management comments with new contracts being closed, no significant attrition of customers and pricing stable. We are paring down our earlier revenue expectations based on recent management commentary of ~US$ 1.1-1.2 billion annualized revenue run-rate (our earlier expectation was US$ 1.4 billion). This was the key reason behind our Sep-09 downgrade of the stock. As such, we have reduced our revenue estimates by 13%/11% for FY11E/FY12E to factor in this lower base.
Upgrading Satyam to Overweight from Neutral with a new Jun- 10 target price of Rs 140/share (Rs 150/share previously). We believe that sharp share price underperformance in the last 3 months (stock down 24% versus Sensex up 11% and large-cap IT sector up 18%) renders risk reward favorable again for Satyam and we recommend buying on a 12-month view.
Sharp control on costs and pro-active head count reduction continue to reinforce our belief that Satyam can achieve margins in line with its peer group over the next 12-18 monthswe continue to estimate 21%/22% EBITDA margins
