Dalal Street

In a research report released minutes ago by Citigroup equity research, they have maintained a BUY recommendation on Satyam Computers Ltd and revised the price target upwards to Rs 582 from Rs 510, 20% appreciation available from current levels.

3Q07 reported numbers were in-line with consensus expectations – however, considering that restricted stock unit (RSU) charge was deferred until next quarter, the results were below expectations.

3Q margins were boosted by seasonal/one-off items like lower leave encashment charges (down from Rs350m to Rs100m QoQ) and lower gratuity (down from Rs110m to Rs30m QoQ). All these seasonal factors reverting to normal levels and introduction of RSU charges will restrict any margin improvement in 4Q.

Satyam’s top-line growth story remains intact with good client wins and strong hiring of ~47% LTM, we believe that revenue outlook for FY08 remains strong. Margin pressures are likely to
continue. Despite factoring in a 150bp improvement in pricing in FY08, the full impact of RSU and wage hikes will result in a margin decline of ~100bps in FY08.

M&A story buried: Satyam has clearly stated in the investor release that it is not looking to get acquired [Speculators bought rumors of CapGemini BUYING out Satyam due to low promoters stake in the company], the M&A story gets buried.

Satyam is expected to report an EPS of Rs 25.18 and Rs 30.23 for FY08 and FY09. After the below-expectation quarterly performance, Satyam is back to a 28% discount to Infosys (vs. 22% before Satyam’s 3Q results). Our target price builds in a 25% discount to Infosys.

Macquaire Equity research in its report is bullish on the prospects of Sterlite Industries and puts a 12 month price target of Rs 852 using sum of parts valuation methodology.

Strong 3Q results: Net sales at Rs68.1bn grew 94% driven by all-round volume growth and higher LME prices. EBITDA at Rs29.5bn grew 215%. Net profit at Rs12.9bn grew 225%.

Zinc – the prime contributor: The zinc business contributed around 67% of net profits and we expect this to continue with our forecast of higher zinc prices and 50% expected capacity expansion.

Aluminium – huge volume growth: With the faster-than-expected stabilisation of its 250kt new smelter, this subsidiary has seen growth of 309% in its operating profits to Rs5.4bn. We expect this business to continue its stellar performance with our forecast of lower alumina prices.

Copper – peaking out: The company realised TC/RCs of 34.8c/lbs for this quarter, driving operating profits to grow 58% to Rs4.5bn. We expect TC/RCs to drop to around 16c/lbs and estimate profits to fall sharply by 50% from next quarter onwards. However, we expect 30% volume growth to lower the impact somewhat.

JV Vedanta alumina refinery on track: The 1mt alumina refinery is expected to be commissioned by March 2007 and will add to profitability in FY08.

Sterlite is expected to to maintain its high profitability, even with our falling forecast for all metal prices. Macquaire expects a recovery in zinc prices, earnings upgrades, visibility on the ADS offering and its purchase of residual stakes in HZ IN from the government to drive the stock up.

Attractive valuations: Sterlite is one of the fastest growing diversified base metals company, while the stock is trading at just 7x PER, which is around 30% discount to its peers globally. We expect this anomaly to correct. Macquaire sets a 12 month target of Rs 852.00 based on a sum of parts methodology.