ICICI Securities 'suspends' its rating on Mahindra Satyam

Mahindra Satyam
CMP: Rs 98.50
TARGET PRICE: NA

ICICI Securities has ‘suspended’ its rating on Mahindra Satyam and has recommended booking profits in the stock, citing lack of clarity on revenue run rate and recent rise in stock valuations. “Our channel checks indicate that Mahindra Satyam’s revenue run rate (calculation using recent history to projected revenues) has now reduced to $1-1.3 billion versus earlier indicated revenue of approximately $1.3 billion,” the brokerage said in a report.

“Assuming revenues of $1.15 billion, we estimate that Mahindra Satyam would require laying-off another 5,000 employees to keep EBITDA (operating profit) margin at +15%, over & above its earlier announced Virtual Pool Programme,” it said.

“Even with significant upgrade, the stock is still not cheap. Despite likely long-term improvement in financials, we do not foresee any major catalyst in the short term,” ICICI Securities said. “Hence, we believe that with the recent run-up in the stock, risk-reward is not wholly favourable, given lack of clarity on the revenue run rate,” it added.