Stock Preacher

Satyam Computer Services Ltd. (ADR) (NYSE: SAY)

Satyam Computer Services Ltd. (ADR) (SAY), also known as Mahindra Satyam, provides information technology services and business process outsourcing (BPO) services in North America, Europe, the Asia Pacific, the Middle-East, Australia, Africa and South America. The Company offers a range of IT services to its customers, including application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services. Satyam BPO Ltd. (Satyam BPO), a majority-owned subsidiary of the Company, engages in providing services such as human resources, finance and accounting, customer contact, and transaction processing. As of July 6, 2009, Tech Mahindra Ltd., a leading provider of solutions and services to the telecommunications industry, had acquired approximately 31.04% of the Company’s outstanding shares of common stock.

Founded in 1987, SAY is headquartered in Hyderabad, India.

Share Statistics (28-Oct-09)
Symbol	SAY
Current price	$5.01
52wk Range:	0.78-16.84
Avg Vol (3m):	3,015,590
Market Cap.	1.69B
Dil. Shares Outst.	336.7M

Source: Reuters.com, SEC Filings

Financial Summary

On October 17, 2008, SAY reported second quarter 2009 earnings of $8.47 per share, topping analysts’ consensus of $7.89 This result also exceeded last year’s second quarter results by 41.88%.  Ramalinga Raju, SAY founder and chairman, speaking on a conference call following the company’s earnings, said the Company’s U.S. GAAP revenue for a quarter was $652.2 million, a growth of 28.8% year-over-year and a sequential growth of 2.3%. Looking forward, the Company expects its third-quarter earnings to grow between 17.6% and 20%.

In its Web site, the Company notes it is “currently in the process of restating its financial statements for the last few years. The Company has been granted time till December 31st, 2009, by the statutory authorities for submission of restated financial statements. The Company would be releasing this information publicly, by end of the year.”

Analyst Consensus

Analysts following SAY rate its shares “Underperform.” This is the consensus forecast amongst 8 polled investment analysts.

Analyst Detail	Buy	Outperform	Hold	Underperform	Sell	No Opinion
Latest	2	0	3	0	3	3
4 weeks ago	2	0	3	0	3	3
2 months ago	1	0	3	0	3	3
3 months ago	1	2	2	0	3	4
Last year	16	6	6	2	0	2

Source: http://markets.ft.com/tearsheets/analysis.asp?s=SAY%3ANYQ

	# of Estimates	Mean	High	Low	1 Year Ago
SALES (in millions)
Quarter Ending Dec-08	14	30,658.62	31,873.00	29,884.00	–
Quarter Ending Mar-09	3	27,256.36	31,175.00	20,265.00	30,041.48
Year Ending Mar-09	7	107,116.80	114,743.00	92,926.00	111,970.36
Year Ending Mar-10	8	99,821.73	146,314.30	61,120.54	130,261.36
Earnings (per share)
Quarter Ending Dec-08	4	8.86	9.40	8.40	–
Quarter Ending Mar-09	2	9.06	9.33	8.80	8.55
Year Ending Mar-09	7	28.95	34.90	15.90	32.25
Year Ending Mar-10	5	35.89	43.70	31.70	36.48
LT Growth Rate (%)	1	20.65	20.65	20.65	11.3

Source: http://www.reuters.com/finance/stocks/estimates?symbol=SAY

Investment Highlights

SAY is a global information technology (IT) services provider offering a range of services, including systems design, software development, system integration and application maintenance. It leverages deep industry and functional expertise, leading technology practices, and an advanced, global delivery model to help clients transform their highest-value business processes and improve their business performance. It provides its services to customers worldwide, with most sales coming from clients in North America and Europe. The Company is part of the $6.3 billion Mahindra Group, a global industrial conglomerate and one of the top 10 industrial firms based in India. The Group’s interests span financial services, automotive products, trade, retail and logistics, information technology and infrastructure development.

On June 21, SAY unveiled its new brand identity – “Mahindra Satyam.” According to the Company, “this strategic move paves the way for the emergence of a robust brand.”

“This rebranding exercise symbolizes an amalgamation of the Mahindra Group’s values with Satyam’s renowned expertise, even as it retains that part of Satyam’s identity which signifies commitment, purpose and proficiency of the organization and its people,” said Anand Mahindra, vice-chairman and managing director, Mahindra Group.

On October 21, the Company announced it secured $8 million worth of new deals in the Middle East and North Africa (MENA) region in the second quarter. In addition, the Company is strengthening its resources to leverage the growing demand within the government, banking, telecom and real estate sectors in the said region.

Manojeet Chowdhury, Head of Middle East and North Africa, Mahindra Satyam, made the following statement: “As the global downturn pushes companies to downsize their internal IT teams to rationalize costs, we have become more committed to delivering greater value to customers within the regional market, which we consider the cornerstone of our growth strategy.  As a stronger organization with the backing of a business house of impeccable repute, we are equipped to address the needs of the region’s most dynamic verticals, including telecom, banking, transportation, retail, oil and gas, manufacturing and the public sector. We are targeting growth of around 100 per cent in the first year, and we are confident of the prospects that lie ahead for us in the region.”

GE, one of the Company’s top clients for over a decade, has reportedly extended its multi-million dollar contract with SAY for the next three years, effective January 1, 2010. “This extension is a testimony to the commitment our associates, have demonstrated and truly symbolizes the value we have been able to add through our services,” Arvind Malhotra, global account executive of Mahindra Satyam stated in the Company’s press release. In the same month, the Company also announced it expanded its partnership with O.C. Tanner, a key customer in the U.S. region.

Market Outlook

According to a report from research firm Gartner, the IT services market is expected to reach $1.1 trillion in 2012, up from $748 billion in 2007, reflecting a compound annual growth rate of 7.4%. This data is unchanged from the firm’s September 2007 forecast.

Amidst a steadily rising IT spending and a growing IT services market, SAY announced two months ago that it has selected Egypt as the location for its first Global Solution Center (GSC) in the Middle East and African sub-continent.  Following the unveiling of its new brand identity, SAY launched the “ERP Shared Support Services,” a new service delivery model offering its ERP (Enterprise Resource Planning) customers support services for Oracle and SAP in the region through its GSC in Egypt.

SOURCE: http://www.mahindrasatyam.net/index.asp

Technical Analysis

Source: www.stockcharts.com

As of last close on October 27, 2009, SAY closed at $5.01, 542.31% above the 52-week low of $0.78 set on January 12, 2009.

Moving Average

SAY is below its 13-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

MACD

The MACD for SAY currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Bollinger Bands

SAY’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, SAY is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Source: http://www.scottrade.com

Comparative Analysis

SAY shares took a nosedive earlier this year after it was announced that executives were engaged in accounting fraud. However, the Company managed to rise from the scandal and went on to report upbeat earnings in it recent quarter. The Company is more determined than ever to move its growth strategy forward.

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Oct-28-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Infosys Technologies Ltd. (ADR)	INFY	47.19	N/A	–	11.45	–	–
International Business Machines Corp.	IBM	120.65	158,050	12.20	11.07	1.65	1.60
Sify Technologies Ltd.	SIFY	2.08	89.07	N/A	N/A	0.59	0.56
Computer Sciences Corp.	CSC	51.08	7,750	N/A	10.36	0.48	0.46
Wipro Limited (ADR)	WIT	18.74	27,300	N/A	32.88	5.00	4.62
BearingPoint Inc.	BGPTQ	0.09	0.397	N/A	N/A	N/A	N/A
Median				–	–	1.07	0.51
Satyam Computer Services Ltd. (ADR)	SAY	5.01	1.69	N/A	N/A	0.66	0.62

Source: Yahoo! Finance, Analyst Estimates.

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY

Insider Purchases – Last 6 Months
	Shares	Trans
Purchases	N/A	N/A
Sales	N/A	N/A
Net Shares Purchased (Sold)	N/A	N/A
Total Insider Shares Held	N/A	N/A
% Net Shares Purchased (Sold)	N/A	N/A

Net Institutional Purchases – Prior Qtr to Latest Qtr
	Shares
Net Shares Purchased (Sold)	N/A
% Change in Institutional Shares Held	N/A

Data provided by Thomson Financial

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