Morgan cuts Satyam 12-month price target

MUMBAI: Morgan Stanley has reduced the 12-month price target on Satyam Computer Services, India's fourth biggest software exporter, by 46 per cent to Rs 375, citing a reduction in the earnings estimates. The brokerage has an outperform recommendation on the stock.

The target price represents a 70 per cent upside from the stock's closing price of Rs 220.25 on Wednesday at the Bombay Stock Exchange. Morgan Stanley lowered its forecast for the company's current year's (April-March) earnings per share by 10 percent to Rs 15.40. The brokerage also introduced an EPS estimate of Rs 22.30 for next year. It said the reduction in the target price was also on account of a revision in the valuation benchmark, a lower target price-earnings to earnings growth (PEG) of 0.6.

The lower target PEG reflects the poor quality of the company's balance sheet, analyst Anantha Narayan said in a report dated April 18. Morgan also expressed concern over the impact of losses of subsidiaries VisionCompass and Satyam Infoway. The report made a sum-of-parts valuation using VisionCompass losses and Satyam Infoway's market capitalisation, arriving at a price-earnings multiple of 11.5 based on Monday's closing price of Rs 190.05.

It said the stock's performance would be influenced by the outlook for the current year, particularly because of the lower-than-expected guidance issued by Infosys Technologies. However, Morgan Stanley said Satyam was safe after having got orders from large customers like TRW, Dupont and Ford.

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