Updated from 7:50 a.m. EDT

Satyam Computer Services ( SAY) late Wednesday posted a nearly 42% jump in sales from a year ago, beating analyst estimates.

The Indian offshoring company also issued targets for the December quarter and fiscal year that surpassed current expectations.

Investors cheered the news Thursday, bidding up shares of Satyam $2.45, or 8.4%, to $31.81 in recent trading. Satyam has been a favorite among many analysts because, until the climb Thursday, the stock was trading at a lower price/earnings ratio than bigger competitors such as Infosys ( INFY).

Hyderabad, India-based Satyam earned $51.6 million in the secondquarter, a 38.4% year-over-year increase. The company earned 32 cents per American depositary share, up from 23 cents per ADS a year earlier.

Analysts polled by Thomson First Call were expecting 29 cents per ADS, which was also the company's guidance.

Satyam's revenue shot up 41.8% from a year ago and 8.9% sequentially to$267.9 million, exceeding the consensus estimate of $259.3 million.

"We had a very satisfying quarter," CFO V. Srinivas said in a telephone interview Thursday.

Among the highlights Srinivas cited: a marked improvement in the company's operating margin, which increase 58 basis points sequentially to 19.3% under U.S. generally accepted accounting principles. That was driven by higher utilization of the company's workforce as well as higher sales.

Satyam, the fourth-largest exporter of software from India, said itadded 32 new customers during the quarter and 1,977 associates, taking total employment to 22,482 and 24,798 including subsidiaries and jointventures.

Looking forward, Satyam said it expects to earn 34 cents per ADS on sales ranging from $279 million to $280 million in the December quarter. For fiscal 2006, which ends in March, Satyam projected earnings of $1.29 per ADS on sales of $1.084 billion to $1.088 billion. That implies an earnings growth rate of 32.8% and sales growth rate ranging from 36.6% to 37.1%.

Both the quarterly and full-year targets exceeded analyst forecasts. Analysts were projecting earnings of 32 cents per ADS on $273 million in sales for the December quarter and earnings of $1.23 per ADS on sales of $1.06 billion for fiscal 2006.

Satyam, which has focused on business in Europe and Asia-Pacific, said that one-third of the new customers during the quarter came from Europe. However, nearly 67% of the company's revenue came from North America. The company's overall customer base now sits at 429.

For the past few quarters now, Satyam has seen increased competition from multinational companies such as Accenture ( ACN) and IBM's ( IBM) global services division, President Ram Mynampati acknowledged in a telephone interview. Although such multinationals are hiring more employees in India, they trail far behind Indian outsourcers like Satyam, which puts them at a disadvantage, he said.

"The more work you move to offshore, unless you move corresponding cost to offshore, it's not going to work well for you," he said, noting the negative impact on margins.

Satyam has distinguished itself from other players in its enterprise software applications business, which involves implementations of software from companies such as SAP ( SAP) and Oracle ( ORCL). More than one-third of the company's revenue -- 39.4% -- came from this business, called consulting and enterprise business solutions.

Meanwhile, the company is still losing money in business process outsourcing, although executives said they expect it to reach cash break-even during the second half of the fiscal year.

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