Saturday, April 15, 2006

AVP

Alien v/s Predator is a Hollywood flick where a team of archeologist discover an Aztec temple under the Antarctic circle, housing a host of alien creatures .. none better than the Alien family and that of the Predator lineage. Only one will win.

A similar comparison can be made in IT stocks .. the biggies .. esp. after the wonderful guidance given by Infosys Technologies Ltd. a couple of days back. I put four IT companies to the test - Infosys Technologies, Satyam Computers, TCS and Wipro. All the above companies have a m-cap of over INR 25,000 crores and have over INR 750 crores of LY profits. All carry virtually zero debt in their balance sheets, are cash-rich businesses and have strong management. And yet there are a number of differences which can be analysed and exploited -

1. Growth in profits has been rather different for all 4 companies. I find that TCS has shown the fastest growth in profits over LY at 42%, while Infosys has been the slowest with only 16% growth. (Satyam - 20%; Wipro - 31%)

2. CMP/NCAV would mean the "margin of safety" that Graham has so often cited in his many illustrations. The ideal number is 0.66. However this number is more true for old economy businesses and not for new sector business like IT services. For the record, Satyam is the best here with 8.66, while TCS has 37.79. (Wipro - 19.73; Infosys - 21.95; NCAV includes investments too)

3. At current prices, I estimate the fwdPE of all four companies at - Satyam - 27.91; Infosys - 37.38; Wipro - 37.81; TCS - 33.31

4. Cash per share - Satyam is at #1 with 75 rupees/share while Infosys is #2 with 54 rupees/share

5. While the dividend yeild of all 4 players is below 1%, Wipro is the best of the lot with a 0.96% dividend. Infosys however just pips Wipro with the special dividend of 30 rupees/share declared recently.

Examining these numbers, I feel Satyam is a good buy at the current price. There is an expectation of a bonus issue from Satyam aswell or a big dividend (it has crazy amounts of cash and is not eyeing any acquisitions).

PS: The movie was pathetic !!!!

8 Comments:

Blogger Prasanth said...

Shankar,

Satyam has bagged a large maintenance project with Nissan and they have been setting up a large operation - around 400 people i think to support that. I know the guy who leads it.

Overall, the company should do well - though i feel that Satyam has to concentrate a bit more on training their people. I have worked with Satyam guys before and i was not impressed with the quality of people. They do have a serious problem in getting project leads and managers.

Regards,

Prasanth

9:14 AM  
Anonymous sandeep said...

Hello there,

in one of ur previous blog you hav mentioned about Hindustan Dorr-Oliver Ltd. the god of pennies.

I read somewhere that it is a subsidary of IVRCL may be that has to do something with the sky rocketting prices.

Thanks,
Sandeep.

12:11 PM  
Blogger sunil kumar said...

Dear Shankar,
One of my friend recommended SRF POLYMER (CMP 223) and given the following:-

-SRFP BV is around 102.54 (Mar-05: geojit.com).
-It may get merged with SRF Ltd. and NAV will be advantegous for SRFP.
-It is holding more than ONE crore shares of SRF LTD. and its NAV based on only SRF LTD shares is more than Rs. 680 per share.
-Stand alone will report a top line of RS. 200 crores with PAT of Rs.8 crores thus giving an EPS of Rs. 12 per share.
-Dividend income from SRF alone shall give consolidated EPS of Rs. 20 per share giving P/E of 12 @ Rs. 240 per share.

He is emphasising on merger with SRF Ltd. hence investment is suggested for long term.
Please advice.
regards
Sunil Kumar

12:49 PM  
Blogger Shankar said...

Hi Prasanth,

There is a Sharekhan report on Satyam too. Just spoted that .. am putting down the highlights -
a) Among top 5 IT service companies
b) Despite continued losses of subsidaries, its performance has shown marked improvement
c) Further re-rating will depend on its ability to turnaround subsidaries, esp Nipuna
d) Sharekhan estimates the PER to come down to 20.7 for Satyam from current levels of 27.9 for FY2007. Thats big!!!
e) It's been ahead of its peers in bagging large outsourcing deals.

I also went through the presentation available at the Satyam website. http://www.satyam.com/investors/documents/presentation_nov05.pdf
They've given a guidance of 8% and 9% for Q1 and Q2. (Satyam has often gone past their guidance)

Warm Rgds,
Shankar

2:27 PM  
Blogger Shankar said...

Hi Sunil,

Ravi in his blog ... graham-2-livermore.blogpost.com has an interesting persepctive on SRF Polymers under the post "Hlding company". You might want to chk that out. He reckons there is a good upside to this stock.

Rgds, Shankar

4:53 PM  
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