Satyam Computer (Satyam) reported an impressive 8.5% quarter-on-quarter (q-o-q) growth in consolidated topline for Q1FY2009.
Volume growth came in at 3%, the slowest in several years, yet again reflecting the cautious environment. Even so, this is the fastest volume growth recorded among the top four software companies this quarter, making it the sixth consecutive quarter when the company has achieved this feat.
The remaining growth was led by rupee depreciation, with the rupee rate for the quarter at Rs41.56 to a dollar, as against Rs39.70 in Q4FY2008, higher by nearly 5%.
However, a clear negative this quarter has been the slight fall in pricing, with both offshore and onsite billing rates falling by 0.2% q-o-q.
EBITDA margins rose by a strong 133bp led by lower salary costs as a percentage of Sales and rupee depreciation.
Going ahead, we expect Satyam to maintain a CAGR growth of 27.1% in topline and 21.2% in bottomline over FY2008-10E. At the CMP, the stock is trading at 10.6x FY2010E EPS.
We expect the company to continue to record industry-leading volume growth, led by continuing demand in its key business of Enterprise Solutions, a steady expansion of service lines and client mining efforts.
The stock is trading at attractive valuations, given industry-beating growth rates, its dominant position in Enterprise Solutions and good return ratios. We recommend a BUY with a 12-month target price of Rs530.