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AnandRathi
Sasken Technologies (Buy)
CMP: ₹588
Target: ₹960
Key takeaways: a) Sasken faced challenges in the quarter as its top client ramped down while the new owner of the division has yet to take Sasken on board. Therefore, no ramp-ups existed to counter this and the company was hit by an estimated aout $2-3 million, with get a similar amount spread a across Q3 and Q4. Without this revenue-loss, Sasken would have grown 2.1 per cent q-o-q, about 20 per cent y-o-y, reflecting underlying trends. Management expects to recoup this loss in the next two quarters.
b) Sasken reported 11.5 per cent EBIT margins in Q2, down from 16.4 per cent in Q1. The 540 bps drop q-o-q in utilisation and a slight (68) headcount reduction resulted into costs shrinking just 2.5 per cent q-o-q (on revenue declining 6.7 per cent q-o-q). The company expects headcount to be stable and utilisation to be pulled back in Q3 to deliver better margins. Given the ramp-down ahead, we are building in a 10.6 per cent EBIT margin for H2 FY20.
We have a target PE of 17x (unchanged) on FY21e EPS, reflecting optimism on the ability to generate growth, and lower our target to ₹960.
Risk: Client-specific issues.
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