Satyam Reports Gains in Profits

Fiscal-year guidance goes up.
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Updated from 10:00 a.m. EDT

Satyam Computer Services

(SAY)

, the Indian tech outsourcer that sponsored a secondary offering of its American depositary shares in May, posted first-quarter sales early Thursday that beat analysts' estimates and raised guidance for the fiscal year.

Hyderabad, India-based Satyam earned $42.3 million in the first quarter, a 16.1% year-over-year increase. The company earned 13 cents a share, or 26 cents per ADS, up from 11 cents a share or 22 cents per ADS a year earlier.

Earnings per ADS come to 27 cents a share -- the consensus estimate gathered by Thomson First Call -- when accounting for foreign exchange loss, according to Fulcrum Global Partners analyst Jamie Friedman, who has a buy rating on the stock. His firm doesn't do investment banking.

Satyam's revenue shot up 40.6% from a year ago and 9.4% sequentially to $246 million, beating analyst estimates of $235.3 million.

Satyam, the fourth-largest exporter of software from India, said it added 31 new clients during the quarter and 1,341 associates, taking total employment to 20,505 and 22,782 including subsidiaries and joint ventures.

For fiscal 2006, the company sees earnings of $1.23 to $1.25 per ADS on sales of $1.05 billion to $1.06 billion. That exceeds the latest consensus estimate pegging earnings at $1.22 a share on sales of $1.03 billion. It's also higher than Satyam's previous guidance calling for revenue to range between $1.01 billion and $1.03 billion, with consolidated earnings per ADS ranging between $1.22 and $1.25.

Satyam's report is in contrast to an earlier

disappointing outlook from its larger rival

Infosys

(INFY) - Get Report

. And Satyam's sequential jump in first-quarter sales is about double the 4.6% reported by Infosys.

Meanwhile,

Wipro

(WIT) - Get Report

, the largest Indian outsourcer with ADRs, is expected to report a sequential decline in sales when it announces fiscal first-quarter results Friday.

But on a basis of price/earnings ratios, Satyam's shares have been trading at a discount to both Infosys and Wipro.

On the basis of Wednesday's close, Satyam was trading at 22.5 times forward earnings, compared with 32.7 for Wipro and 35.5 for Infosys.

Consequently, there's much more room for multiple expansion from Satyam than its peers, Friedman argued. "Our argument is things are getting better there," he said. "People are starting to pay attention to these guys."

Still, since Satyam priced a secondary offering at $21.50 per ADS on May 11, shares have appreciated 27% beyond that level. Shares of Satyam rose 67 cents, or 2.5%, to $28.07 in recent trading.