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Business News/ Opinion / Online-views/  Mahindra Satyam’s turnaround sustained
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Mahindra Satyam’s turnaround sustained

Mahindra Satyam’s turnaround sustained

MahindraSatyam chairman Vineet Nayyar announcing the Q2 financial results of the company in Hyderabad on Thursday. PTIPremium

MahindraSatyam chairman Vineet Nayyar announcing the Q2 financial results of the company in Hyderabad on Thursday. PTI

Satyam Computer Services Ltd’s shares have risen by 37% since it announced better-than-expected results for the quarter ended December. That was more than eight months ago, on 11 February. In the same period, the National Stock Exchange’s CNX IT index has declined 8%.

In the December quarter, it reported an 11% sequential growth in earnings before interest, tax, depreciation and amortization (Ebitda).

MahindraSatyam chairman Vineet Nayyar announcing the Q2 financial results of the company in Hyderabad on Thursday. PTI

Given the sharp depreciation in the value of the rupee in the last quarter, as well as the fact that the company postponed salary hikes to October this year, the increase in margins seems tepid at 50 bps. In fact, gross margins rose sharply and it was because of an equally high increase in selling, general and administrative (SG&A) costs that operating margin was more or less stagnant.

SG&A costs included a cost of about Rs25-30 crore related to the deployment of hardware and software for certain projects. Margins are expected to be affected by 250-300 bps in the December quarter owing to the wage hikes effective from October.

Overall, however, the results were decent and will reaffirm to investors that the turnaround seen earlier this year is being sustained. Of course, given the company’s high operating leverage, any sharp downturn will obviously hit it relatively harder. But again, this is more or less reflected in the company’s valuations, which are at a hefty discount to average industry valuations.

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Published: 13 Nov 2011, 08:53 PM IST
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