Satyam surprises, Wipro disappoints

RESULTS REVIEW: SEPTEMBER 2005

(Rs crore)

Q2FY06

Q1FY06

% change

Net sales

2436.50

2206.40

10.43

Other income

70.30

55.50

26.67

Operating profit

511.80

456.30

12.16

OPM (%)

21.01

20.68

33bps

Net profit

487.00

356.90

36.45

NPM (%)

19.99

16.18

381bps

EPS (Rs)

3.41

6.12

Trailing 12-month P/E

33.67

 On a quarter on quarter basis, overall revenues were up from Rs 2206 crore to Rs 2436 crore. But revenues from the global IT Services were up 9.4 per cent at Rs 1894 crore.  Sequentially, operating profits were up 12.16 per cent overall. In the global IT services business, the operating profit growth was 11.3 per cent.  Analysts continue to forecast an earnings growth of about 25 per cent for FY06, but there could be disappointment going by the growth numbers so far this year. Earnings in the December and March quarters would have to grow by 13 per cent q-o-q, on an average, in order to achieve consensus estimates of about Rs 14.5 per share.  This may be difficult to achieve as Wipro has given salary increases for its offshore employees effective October 1 which will impact profit margins.  The stock trades at 29 times 12-month trailing earnings and 25.4 times FY06 earnings. With operating profit growth as low as 13.3 per cent in the first six months (compared to 30 per cent for Infy and 20 per cent for TCS), investors seems to be paying more for less growth.  SATYAM COMPUTER
Satyam has fared significantly better than its larger peers  Satyam Computer announced excellent numbers for the quarter with net profit rising 24.79 per cent on a sequential basis. Revenues increased 9.09 per cent. In the first half of this fiscal, Satyam Computer has seen a revenue growth of 33 per cent and net profit growth of 26 per cent.  The company has fared significantly better than its larger peers. The company raised its revenue growth estimates for the year to about 34 per cent and increased its earnings guidance estimate for FY06 by over six per cent. Its revised guidance of an EPS of Rs 29.23 is even higher than consensus estimates till the company announced its results.
 

SATYAM
(Rs crore)	Q2FY06	Q1FY06	% change
Net sales	1154.97	1058.74	9.09
Other income	31.55	23.41	34.77
Operating profit	307.94	264.13	16.59
OPM (%)	26.66	24.95	171bps
Net profit	237.33	190.19	24.79
NPM (%)	20.55	17.96	259bps
EPS (Rs)	7.39	5.95
Trailing 12-month P/E			26.84

 On a quarter-on-quarter basis, Satyam's operating profit growth of 16.59 per cent. Analysts said there's hardly anything negative in Satyam's results, with receivables coming down and operating cash flow rising considerably.  Operating margins and net margins improved compared to the June quarter. Operating margins were up about 170 bias points while net margins were up over 250 basis points.  Not surprisingly, the Satyam stock rose over 5 per cent on the day of the results to Rs 587.5. Currently, the stock trades at about 20 times FY06 earnings.  Though the rise in the Satyam stock has increased the valuation gap between the company and bellwether Infy, it trades at a significant discount about 25 per cent.  Analysts believe that the company has been on fast track this year and there is reason to believe that the growth momentum will be maintained. The stock could thus see a re-rating going forward.  HDFC BANK
Higher non-interest income boosts performance  HDFC Bank reported one more quarter of sustained growth. The bank reported a growth rate of around 30 per cent, which is similar to what it has achieved during the past two years. 

HDFC BANK
(Rs crore)	Q2FY06	Q2FY05	% change
Interest earned	1022.90	744.70	37.40
Other income	260.20	122.70	112.06
Interest expense	410.80	319.10	28.74
Net interest income	612.10	425.60	43.82
Operating profit	470.60	301.00	56.35
Net profit	199.60	152.30	31.06
Capital adequacy	10.40	10.90
EPS (Rs)	6.40	5.30
Trailing P/E @Rs 648			25.90

 

In Q2FY06, its net interest income grew by 43.8 per cent at Rs 612.1 crore largely driven by an asset growth of around 36 per cent. Interest margin improved by 265 bps to 59.80 per cent in Q2FY06.

Non-interest income grew by a whopping 112 per cent to Rs 260 crore. This was largely led by a 62.60 per cent growth in fee based income, doubling of its forex income and profit of Rs 11.9 crore on money market operations as against loss of Rs 25.90 crore in Q2FY05.

However, net profit grew at a slower rate of 31.10 per cent at Rs 199.6 crore. This was mainly due to a rise of 62.4 per cent in operating expenses at Rs 401.6 crore mainly on account of addition of 36 branches, spike in staff costs by 81.60 per cent and rise of 55.80 per cent in other operating expenses.

There was also an increase of 138.30 per cent in provision for contingencies at Rs 180.60 crore. This is mainly for general and specific loan loss provision and amortisation of premia for investments in the HTM Category. As a result, net margins declined by 490bps to 22.90 per cent in Q2FY06.

The only blip during the quarter was the substantial fall in Tier-I capital. However, asset quality remains strong, with net NPAs at 0.30 per cent of customer assets.

The company