Mahindra Satyam Ltd Results – What to expect tomorrow?

Satyam came out with their Q3 results after the end of trading today. The salient points in their result are:

1. Consolidated Revenue up 34% YoY and 9% QoQ at Rs1718 Crore
2. Consolidated PAT stood at Rs 308 Crore, a rise of 29% QoQ and 424% YoY

A major point to be noted is that the pre-tax “Other Income” surged by 56.4% to Rs 151.3 crore. The EBITDA stood at increased by a relatively modest 15.1%. The EPS for Q3 was reported at Rs 2.62. The nine month EPS stood at Rs 6.56. In absence of Q4 guidance, for a back-of-the-envelope calculation, if we annualise this EPS, we get an EPS of Rs 8.75. But on the other hand, if a performance equivalent to this quarter were to come (flat QoQ growth), then the EPS for the year ending March 2012 would stand at Rs 9.18. 

Now, the IT industry average P/E multiple is around 20, while at the present annualised P/E multiple, Satyam trades at 8.7. Considering the P/E multiple based upon the H1 EPS which stood at 2.52 (Annualised value of Rs 5.04), the stock was trading at a multiple of 15. With the better results for the company in the last quarter (EPS for Q3 was greater than that of H1 combined) the stock would be trading at a far lower multiple of 9 if it does not grow tomorrow.

Hence, I would buy Satyam and set a target of Rs 100-110 (When a current P/E multiple of 12-13 would be achieved).