A two-year wait for a reality check on the financials of fraud-hit Satyam will not exactly make investors jump with joy. Forecasts from analysts have only painted a gloomy picture of the company. Revenues are falling, attrition is on the rise, margins are depressed and will continue to remain so over the next two years as the company battles supply-side and compliance headwinds.
Mahindra Satyam?s FY09 and FY10 audited financials will be declared on September 29. Satyam?s EPS in FY12 may not exceed Rs 8, analysts noted. CLSA India said the best case FY12 EPS is unlikely to be higher than Rs 9. Citigroup pegged it at Rs 7.8 and in a report titled ?Grapes of Fraud?, IIFL expected it to be Rs 7.4 in FY12. ?Mahindra Satyam?s financials per se are unlikely to provide comfort as we expect revenues to have eroded sequentially during FY10 and profitability to have worsened to single digits. Also, the management?s forward-looking commentary during the result is likely to mirror our view that margin recovery will be delayed and revenue growth is likely to lag that of top-tier vendors significantly,? IIFL noted in a report.
The firm estimates 10?12% revenue growth for the firm in FY11-12 versus peers? 20?25% growth. FY11 EBITDA margins are seen at 15%. IIFL believes FY10 would be the worst year for Satyam?s EBITDA margins ? it would shrink to 5% before expanding to 16.5% by FY12. CLSA too expects the firm?s EBITDA in FY11 and FY 12 to be at 15% and 16.5% respectively while Citi paints a slightly more optimistic picture at 13%, 17% and 19% EBITDA for FY10, FY11, and FY12 respectively. ?We see optimism around Satyam?s margins misplaced. No amount of cost cutting can rationalise the lack of topline traction. With revenues likely down to $1.2 billion from $2 billion, we would be surprised to see a double digit EBIT margin in FY10. FY10 would also have extraneous costs like legal fees and other restructuring charges,? CLSA said.
Senior stock market analyst C Kutumba Rao expects the margins to be squeezed because of high attrition and low business volume. ?Due to loss of key employees and lack of credibility, margins will be squeezed. Due to the cost in the expenditure, a loss of Rs 200 crore to Rs 505 crore is estimated,? he said.
Analysts said Satyam?s attrition rate may be at 30% because of the upswing in demand and poaching from other top tier firms. Top line growth, the biggest lever for margin expansion, has become difficult because of client exists and project ramp downs. The company may not have any pricing power in the current environment and cannot participate in many deals because it is a firm without proper visibility into its financials. According to a J P Morgan APAC Equity Research study, Mahindra Satyam could have an annualised revenue run-rate of $1.2-1.3 billion.
?Based on a reasonable billing rate assumption of around $55 per hour per person (onsite) and around $20 per hour per person (offshore), a 20-25% discount to Infosys? billing rate (both onsite and offshore) and an headcount assumption of 30,000 as the company had indicated in April that it had 28,000 employees, we assume an annualised assumption of $1.2-$1.3 billion,? JP Morgan analysts noted.