Satyam: Sitting pretty

The IT major has overcome rupee blues to emerge a winner among technology companies.

Since the beginning of this year, the BSE IT index has lost 5.8 per cent as the dollar started depreciating from early March 2007 against the rupee.

While Infosys and Wipro have lost 9.7 per cent and 11.8 per cent of their stock price, respectively, and TCS down 1.2 per cent, Satyam Computer has emerged as the top performing technology stock among the big four, gaining 1.5 per cent.

The reason: its fourth quarter results and its guidance for the present quarter have made analysts increase their earnings expectations for this year.

Also, concerns of a slowdown in the enterprise business solutions from the US clients, which accounted for 41 per cent of its FY07 revenues, have reduced. Its offshore component has also increased by 170 basis points q-o-q, which should help margins.

In Q4 FY07, Satyam's consolidated top line grew 7.1 per cent q-o-q to Rs 1,779 crore on the back of an 8.1 per cent volume growth and a 0.7 per cent increase in billing rates. However, its operating margin was flat at Rs 410 crore. Like other IT companies, Satyam too faced a decline in operating profit margin, which declined 160 basis points sequentially to 23.06 per cent in Q4.

Of this, about 60 basis points was on account of the rupee appreciation and the rest due to a charge on account of restricted stock options. Attrition too fell by 190 basis points, sequentially.

Satyam has provided a revenue growth guidance of 20-22 per cent in rupee terms after factoring in a 6 per cent rupee appreciation, with an EPS growth of 18-20 per cent this year.

The management expects margins to remain flat this year, with some sequential improvement in Q1 FY08. With the Satyam stock trading at 19 times estimated FY08 earnings and 15 times FY09 earnings, the stock should outperform.

NRB Bearings: Smooth sailing

NRB Bearings, whose customers are largely in the two-wheeler and commercial vehicle segments, reported an improved performance in the March 2007 quarter, thanks to its enhanced capacities coming on stream.

As a result, the company's operating profit grew 27.9 per cent y-o-y to Rs 20.47 crore in Q4 FY07, while its net sales increased by 23.2 per cent to Rs 84.5 crore. Its operating profit margin also improved 90 basis points to 24.2 per cent in the last quarter.

NRB is understood to currently enjoy a 70 per cent market share in the needle bearings segments, with customers such as Tata Motors and Bajaj Auto. For FY07, the company's consolidated operating profit margin grew 90 basis points y-o-y to 25.3 per cent.

However, the Street has been concerned that the current sluggish sales outlook for the company's key user industries such as two-wheelers, could curtail its sales growth in the medium term.

As a result, the NRB Bearings stock has declined 9 per cent over the past three months, compared to a 14 per cent gain in the BSE Mid-Cap index. Nevertheless, the stock is reasonably priced at around 8.5 times estimated FY08 earnings.

Wyeth: Mission accomplished

In FY07, Wyeth benefited from the steps taken in earlier years to improve its operational efficiency, which include bringing down its staffing levels and disinvestment of its bulk drug manufacturing facilities.

As a result, Wyeth has emerged as one of the better performing MNC pharmaceutical companies in FY07. The company's operating profit grew 43.3 per cent y-o-y to Rs 100.3 crore last year, though sales growth was more or less flat at Rs 288.1 crore. Its operating profit margin also grew 1440 basis points y-o-y to 34.8 per cent in FY 07.

Other MNC players like Aventis Pharma's operating profit margin declined 230 basis points y-o-y to 25 per cent in CY06. Meanwhile, the improved performance of Wyeth has not gone unnoticed by the Street "� the stock has gained 24.5 per cent over the past three months compared to a 13 per cent rise in the Sensex.

In Q4 FY07, Wyeth's operating profit margin also improved an impressive 1620 basis points y-o-y to 25.7 per cent, helped by the improved demand for its medications in segments like hormone therapy, antibiotics, vaccines and women's health.

Going forward, with domestic pharma sales expected to remain strong over the next few quarters, it should help to drive growth at Wyeth. The stock trades at a reasonable 14 times FY07 earnings.