Consulting and IT services provider Satyam Computer Services on Monday announced a 17.84 per cent jump in its January-March quarter profit after tax at Rs 468.45 crore.
The company had reported a PAT of Rs 397.51 crore for the fourth quarter ended March 31, 2007, the company said in a filing to the BSE.
The stand-alone total income increased to Rs 2,337.84 crore for the quarter ended March 2008 from Rs 1,778.40 crore in the year-ago period.
The board of directors declared a final dividend of Rs 2.50 on shares of Rs 2 each (125 per cent).
Accordingly, the total dividend recommended for the year is 175 per cent (Rs 3.50 on shares of Rs 2 each), including interim dividend of 50 per cent, the company added.
For the year ended March 31, the company posted a profit after tax of Rs 1,715.74 crore as against Rs 1,423.23 crore in the previous year. Total Income of the company increased to Rs 8,394.48 crore for the year ended March 2008, from Rs 6,410.08 crore a year ago.Shares of the company were trading at Rs 480.85, up 2.54 per cent on BSE in early morning trade.
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This is likely to drain out Rs185bn of liquidity from the system. Currently the liquidity in the system is comfortable as banks are parking money with RBI (average LAF absorption by RBI was Rs400bn during April 3-17, 2008 as against average daily injection of liquidity of Rs.274bn during March 17-31, 2008) hence liquidity wont be impacted significantly but after today’s run up in banking stocks some correction could be witnessed.
Year-on-year WPI inflation, which was 3.83 per cent on January 12, 2008, i.e., at the time of the announcement of Third Quarter Review, increased to 7.41 per cent on March 29, 2008 and remained at 7.14 per cent as on April 5, 2008 and its overall impact on inflation expectations requires to be monitored and moderated by RBI.
RBI in the third quarter review of monetary policy had stated that “liquidity management will continue to assume priority in the conduct of monetary policy. It was further stated that the liquidity conditions are being shaped by several underlying factors and their developments have implications for liquidity management going forward and warrant appropriate and timely action.” Taking the above factors into consideration RBI has taken the appropriate steps.
Our back of the envelope calculation suggests that NIMs are likely to be impacted by 2-4 bps and FY2009E PAT by 2-3%.
Banks currently don’t get interest on CRR hence the loss in income is due to funds that have to be set aside for CRR from excess liquidity parked in call money and other short term instruments. PSU banks could roll back PLR cuts announced in Feb 2008. However we feel all banks are likely to wait for the monetary policy to be over before taking any decision.
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We recently met the management of Bharat Forge (BFL) to get an update on its existing businesses as well as on some new initiatives and expansion plans announced by the company. On the existing business front, BFL has gained market share with Tata Motors – a key customer due to favorable change in Tata Motors’ product mix. This, and a strong growth in the non-automotive components business have mitigated the impact of a slowdown in CV sales in FY08.
Growth in exports too has been strong at 30%yoy (42%yoy adjusted for rupee appreciation) during 9mth FY08. Amongst BFL’s overseas subsidiaries, BFL America has seen a significant drop in business volumes in FY08 due to a slowdown in car and truck sales in North America.
On the new initiatives front, BFL’s upcoming non-automotive components facilities are likely to commence commercial operations in Q4FY09 and we expect material revenue contribution only from Q1FY10. These facilities are likely to operate at ~50% capacity utilization in FY10 and would have a revenue potential of Rs9-10bn at 100% utilization. BFL’s proposed JV with NTPC (51:49) would initially manufacture components for power equipment and would aim at manufacturing complete power plants by 2011-12 (initial capacity likely to 4500MW). Though BFL’s stake in the JV could be in for a significant dilution due to induction of a technology partner, it would remain a key component supplier to the JV with the obvious benefits of enhanced business opportunities.
BFL’s proposed Rs7.0bn fund raising plans (Rs4.0bn in debt and Rs3.0bn in preferential warrant issue to promoters) would be utilized for funding the proposed venture into the Capital Goods sector (which includes the JV with NTPC). We believe BFL would also need to plan a further expansion in its automotive components business as we estimate ~100% capacity utilization in this segment by FY10.
In our view the company’s target of 12% EBIDTA margin for its subsidiaries by FY10 (7.9% in 9mth FY08) appears stretched due to delays in achieving benefits of product rationalization and other synergies. BFL has re-iterated that escalations in steel prices are a pass through with most customers and hence would not impact margins materially. Going forward, we expect higher proportion of non-automotive components to lead to higher margins and consequently expect ~300bps margin expansion over FY08-10. This would lead to a strong 40% PAT CAGR for BFL over FY08-10. The stock trades at PER of 13.3x and EV/EBIDTA of 6.2x FY10 based on fully diluted equity capital. Maintain Outperformer.
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