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Satyam Preferred Pick – CLSA + Macquarie

November 15, 2007

Tier-I Labor Arbitrage Software vendor, Satyam Computers Ltd still remains a top pick amongst research houses, particularly, CLSA and Macquarie. With two quarters remaining in the current fiscal year, expect tier-1 IT firms to finish the fiscal on a strong note. Satyam has progressively revised its FY08 US-dollar-terms revenue growth guidance from 29% at the start of the fiscal year, to 35% after 1Q FY3/08 and 42% after 2Q FY3/08. Both the houses have set a price target of Rs 550.

Satyam is currently trading at 16x FY08 earnings and 14x FY09 earnings. EPS is expected to grow 24% from FY08E to FY13E, implying a PEG of 0.66. Assuming the rupee to be at 36.5 to the US dollar for FY09 and accounted for the STPI tax benefit going away in FY10. Macquarie and CLSA reiterate Outperform rating on the stock.

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