TARGET INR130.

00
Satyam Computers SCS IN PRIOR TP
CLOSE
INR130.00
INR98.95
BUY
INDIA / SOFTWARE & SERVICES UP/DOWNSIDE +31.4% UNCHANGED

HOW WE DIFFER FROM THE STREET ADR TICKER: SAY US NEW INFORMATION
BNP Consensus % Diff
Target Price (INR)
EPS 2010 (INR)
130.00
5.52
160
2.9
(18.7)
90.3
Healthy indicators emerge
EPS 2011 (INR) 10.12 8.5 19.1 ƒ Marginally better revenue; higher employee count vs BNPP est.
Positive Neutral Negative ƒ Margins below est., but significant room for improvement.
Market Recs. 4 1 0 ƒ Turnaround on track; clearer picture likely from Nov. results.
KEY STOCK DATA ƒ Reiterate BUY; TP unchanged.
YE Mar (INR m) 2010E 2011E 2012E
Revenue 54,195 60,718 71,371 Revenue concerns to subside
Rec. net profit 6,616 12,131 14,293
Satyam reported its restated financials for
FY09 and FY10 yesterday. Revenue of
Recurring EPS (INR) 5.52 10.12 11.92
INR88.1b and INR54.8b, respectively,
Prior rec. EPS (INR) 5.52 10.12 11.92 came in marginally ahead of our
Chg. In EPS est. (%) 0.0 0.0 0.0 estimates. EBITDA margins at 3.4% and
EPS growth (%) (29.7) 83.4 17.8 8.3% were below our expectations on
Recurring P/E (x) 17.9 9.8 8.3
higher wage costs and other operating
expenses. With a higher-than-expected
Dividend yield (%) 0.0 0.0 0.0
employee count (27,474 as of FY10, Abhiram Eleswarapu
EV/EBITDA (x) 7.1 4.6 3.4 +91 22 6628 2406
BNPP: 26,375) and revenue performance, abhiram.eleswarapu@asia.bnpparibas.com
Price/book (x) 2.0 1.7 1.4 concerns on the company’s top line
should abate. Yet we note that these Avinash Singh
Net debt/Equity (46.9) (56.5) (64.3) +91 22 6628 2407
ROE (%) 17.1 19.2 18.6 results provide only limited insights and avinash.singh@asia.bnpparibas.com
the true state of business would only
(INR) Satyam Computers (%) emerge with the 1Q and 2Q FY11 results (to be announced on 15
130 Rel to MSCI India November). Despite the lower-than-expected margin performance, we
(9) see significant scope for improvement going forward with continued focus
110 on cost efficiencies. With an improving overall demand environment, and
(29) likely participation in large deals made possible by the availability of the
90
restated financials, we remain positive on the overall turnaround story,
70 (49) which we have stated in the past is “risky, but compelling.”
Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
Key takeaways from the call
Share price performance 1 Month 3 Month 12 Month As expected, Satyam reported significant one-time expenses for FY09
Absolute (%) 19.5 5.0 (20.2) and FY10 (INR79.9b and INR4.2b). Satyam also highlighted the various
Relative to country (%) 8.5 (6.8) (41.2) legal cases it is currently involved in, which, by our calculations, could
Next results November 2010 amount to INR17-18/share in the worst case. We factor in ~INR7/share of
Mkt cap (USD m) 2,588 legal liabilities in our base case (see Exhibit 3). The company reported a
3m avg daily turnover (USD m) 33.1
cash balance of ~USD480m as of FY10. Satyam reported strong client
wins (44) in FY10 alone, which our checks suggest has remained steady
Free float (%) 57
over the past few quarters. In addition the company highlighted that it had
Major shareholder Tech Mahindra (43%)
not seen any significant price declines as a consequence of the
12m high/low (INR) 120.40/79.15 accounting fraud. On the likely Satyam-TECHM merger, which we
3m historic vol. (%) 41.7 believe is a key stock re-rating event especially for TECHM, management
ADR ticker SAY US remained noncommittal stating that only after releasing the 1Q/2Q FY11
ADR closing price (USD; Sept 28) 4.54 results would the possibility be seriously reviewed.

Reiterate BUY; TP unchanged

Sources : Bloomberg consensus; BNP Paribas estimates

RECENT COMPANY & SECTOR RESEARCH
Time for some sobriety...................................... 27 Sep 2010
Up on its feet and running..................................19 Mar 2010
More evidence of a solid FY11...........................10 Feb 2010
We reiterate our BUY rating on Satyam and will take a detailed look at
our estimates shortly. We acknowledge the risks that Satyam presents,
but believe it continues to make for a compelling turnaround story – signs
of which are starting to appear. That said, we expect the local shares to
remain weak until the disclosed financials are fully digested. We believe
investors could use the weakness as a good entry point for long-term
positions. Risk: Unfavourable macro environment and FX movements.

BNP Paribas Securities Asia research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://equities.bnpparibas.com. Please contact your
salesperson for authorisation. Please see the important notice on the back page.

PREPARED BY BNP PARIBAS SECURITIES ASIA 30 September 2010

THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

Exhibit 1: Actual Versus BNPP Estimates

—————— FY09 —————— ————— FY10 ————— Revenue for FY09/10 at INR88.1b/54.8b
Reported BNPP Var Reported BNPP Var came in-line with our and Street’s
(INR m) (INR m) (%) (INR m) (INR m) (%) estimates. However, EBITDA margins at
Rev., USD standalone* 1,806 1,771 2.0 1,075 1,097 (2.0) 3.4/8.3% were below our expectations on
Rev., USD consol.* 1,894 1,864 1.6 1,155 1,144 1.0
higher wage costs and other operating
expenses
Rev., INR standalone 84,062 81,942 2.6 51,005 51,997 (1.9)
EBITDA, INR standalone 3,477 12,182 4,797 9,557
% of sales 4.1 14.9 9.4 18.4
EBIT, INR standalone 505 9,558 2,889 7,027
% of sales 0.6 11.7 5.7 13.5
Rev., INR consol. 88,126 86,223 2.2 54,810 54,195 1.1
EBITDA, INR consol. 3,017 12,401 (75.7) 4,569 9,225 (50.5)
% of sales 3.4 14.4 8.3 17.0
EBIT, INR consol. (246) 9,526 2,425 6,530
% of sales (0.3) 11.0 4.4 12.0
Profit after tax, INR consol. (81,768) 5,394 (1,246) 6,616
Exceptional items 79,920 - 4,169 -
Profit after tax, INR consol. (1,848) 5,394 2,923 6,616 (55.8)
adjusted
Diluted EPS, consol. (121.49) 7.85 (1.14) 5.52
Diluted EPS, adjusted (2.75) 7.85 (135.0) 2.67 5.52 (51.5)
Employees, consol. 45,702 45,223 1.1 27,474 26,375 4.2
Note: * based on average USD/INR exchange rate for FY09 and FY10
Source: Satyam Computers; BNP Paribas estimates

Exhibit 2: News Flow On Satyam – Past And Likely Future

- More small deal - More small deal - Release of FY09 and - Start of quarterly We believe the merged entity should
wins wins from existing FY10 financials financial reporting retain the Satyam brand name,
- Wage hikes to clients - Financials to allow - Potential merger plans irrespective of how the merger is
stem attrition - Likely increased company to bid for new with Tech Mahindra structured, based on the publicity the
- Virtual pool fresher hiring projects - Likely P/E re-rating of “Mahindra Satyam” brand got from the
programme ends - Market hiring and likely both SCS and TECHM FIFA World Cup and other media
- More cost new deal wins stocks coverage
rationalization

Mar-10 Jun-10 Sep-10 Dec-10

Source: BNP Paribas

Exhibit 3: Summary of Likely Claims and Damages – Comments by the Company and their Impact on our TP
(USD m) —— Claims —— ———————————————— Comments/update ————————————————
Satyam BNPP est. Satyam BNPP estimates in the base case
Unacknowledged ~270 75 Classified as 'Amounts Pending Investigation We factor in 30% of those in our base case.
claims by 37 Suspense Account (Net)' under liabilities in the
companies B/S for the entire amount of INR12304m
Upaid case 70 70 Company has deposited the amount in an Case recently settled out-of-court for USD70m with a further
escrow account subject to the settlement ruling in favour of Satyam with no additional tax liabilities.
US class action >68 22 The company is contesting the lawsuits and is Assuming 3% settlement in our base case, on approximately
lawsuits yet to determine the actual impact USD723m of disclosure dollar loss (DDL) ADR holders might
have faced since the company’s intention to acquire the Maytas
businesses*.
Additional write-offs, ~125 24 The company is contesting various income tax We factor in ~USD24m of such claims and write-offs in addition
etc related claims to the tune of INR5,575m to the liabilities likely arising out of the above mentioned claims
Total (USD m) ~460 191
Total (INR m) 20,939 8,595
Amount per share 17 7
* According to a study conducted by Cornerstone Research on corporate frauds in the US, the median settlement as a percentage of DDLs over USD500m for 2002-2007 was 2.4% (sample
size=155) and 2.1% (sample size=17) in 2008.
Source: Satyam Computers; BNP Paribas estimates

2 BNP PARIBAS
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

Exhibit 4: Satyam DCF Valuation Summary

WACC (%) 14.2
Terminal growth rate (%) 5.0
Revenue growth – FY09-12E (%) (6.1)
Revenue growth – FY12-19E (%) 12.0
Annual EBIT margin change – FY09-12E (bp) 312
Annual EBIT margin change – FY12-19E (bp) (30)
DCF-based TP (Dec-10), ex-liabilities (INR) 137
Adjustment for liabilities, base case (INR) 7
DCF-based TP (Dec-10), base case (INR) 130
Implied FY11E P/E (x) 12.8
Implied FY12E P/E (x) 10.9
Source: BNP Paribas estimates

3 BNP PARIBAS
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

—— Base —— —— Best —— ——Worst —— Key Earnings Drivers & Sensitivity

FY11E FY11E FY11E FY11E FY12 ƒ The key macro factor that can impact Satyam’s earnings is
E currency fluctuation, specifically the USD/INR rate.
USD/INR period end 45.75 45.75 48.50 50.32 43.50 41.18
EPS (INR) 10.12 11.92 12.21 16.08 8.41 7.78 ƒ In our best and worst cases, we assume the FY12 average
Change (%) 20.6 34.9 (16.9) (34.8) USD/INR rate changes by 10% versus our base case. We
calculate that, all else staying the same, this could cause a
35% variation to our base case FY12 EPS.

Sources: BNP Paribas estimates

Satyam Computers and BSE Sensex 30 Index (3M and 6M Regression – Satyam Computers Rel to BSE Sensex 30
Realised-Vol) Index

522
(%)

400 422
350

Satyam Computers
300 322

250
222
200
150
122
100
50
22
0 7225
9225 11225 13225 15225 17225 19225 21225
Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 BSE Sensex 30 Index
Satyam Computers = 322 + 0 * SENSEX Index
Satyam Computers - 3M Realised - Vol Satyam Computers - 6M Realised - Vol
R Square = 0.0017
BSE Sensex 30 Index - 3M Realised - Vol BSE Sensex 30 Index - 6M Realised - Vol Regression based on 261 observations of 5 years weekly data. Please refer to Appendix 1 for the
explanation of R-square
Sources: Bloomberg; BNP Paribas Sources: Bloomberg; BNP Paribas

India Sector Correlation Matrix at 15 July 2010

India India India
India India Engineering Software & Metals & India Oil & India India India
Autos Banks & Construct Services Mining Gas Property Telcos Utilities
India Autos 1.000 0.688 0.701 0.569 0.724 0.672 0.630 0.599 0.688
India Banks 1.000 0.838 0.582 0.713 0.733 0.747 0.683 0.781
India Engineering & Construct 1.000 0.593 0.739 0.756 0.785 0.711 0.792
India Software & Services 1.000 0.555 0.584 0.452 0.500 0.563
India Metals & Mining 1.000 0.768 0.716 0.642 0.744
India Oil & Gas 1.000 0.656 0.671 0.787
India Property 1.000 0.672 0.733
India Telcos 1.000 0.733
India Utilities 1.000
Source: BNP Paribas Sector Strategy

Long/Short Chart The Risk Experts

(x) The Risk Experts
• Our starting point for this page is a recognition of the
1.01
macro factors that can have a significant impact on stock-
0.81 +2s
price performance, sometimes independently of bottom-up
0.61 +1s factors.
0.41
Mean
0.21 • With our Risk Expert page, we identify the key macro risks
0.01
-1s that can impact stock performance.
-0.19 -2s
Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 • This analysis enhances the fundamental work laid out in
Satyam Computers - Tech Mahindra the rest of this report, giving investors yet another resource
to use in their decision-making process.

Sources: BNP Paribas estimates

4 BNP PARIBAS
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

FINANCIAL STATEMENTS

Satyam Computers
Profit and Loss (INR m)
Year Ending Mar 2008A 2009A 2010E 2011E 2012E
Revenue 86,223 54,195 60,718 71,371
Cost of sales ex depreciation (58,778) (36,827) (35,794) (43,916)
Gross profit ex depreciation 27,445 17,368 24,923 27,455
Other operating income 0 0 0 0
Operating costs (15,043) (8,144) (9,391) (10,274)
Operating EBITDA 12,401 9,225 15,532 17,180
Depreciation (2,875) (2,694) (2,576) (2,617)
Goodwill amortisation 0 0 0 0
Operating EBIT 9,526 6,530 12,956 14,563
Net financing costs (610) (488) (300) (135)
Associates 0 0 0 0
Recurring non operating income (2,748) 2,149 2,442 3,539
Non recurring items 0 0 0 0
Profit before tax 6,168 8,192 15,099 17,967
Tax (774) (1,576) (2,968) (3,674)
Profit after tax 5,394 6,616 12,131 14,293
Minority interests 0 0 0 0
Preferred dividends 0 0 0 0
Other items 0 0 0 0
Reported net profit 5,394 6,616 12,131 14,293
Non recurring items & goodwill (net) 0 0 0 0
Recurring net profit 5,394 6,616 12,131 14,293

Per share (INR)

Recurring EPS * 7.85 5.52 10.12 11.92 Expect FY11 revenue
Reported EPS 8.00 5.63 10.32 12.16 growth close to the
DPS 0.00 0.00 0.00 0.00 industry average after
Growth operational stability is
Revenue (%) na (37.1) 12.0 17.5 restored
Operating EBITDA (%) na (25.6) 68.4 10.6
Operating EBIT (%) na (31.4) 98.4 12.4
Recurring EPS (%) na (29.7) 83.4 17.8
Reported EPS (%) na (29.7) 83.4 17.8
Operating performance Modelling EBIT margins
Gross margin inc depreciation (%) 28.5 27.1 36.8 34.8 to expand on cost-cutting
Operating EBITDA margin (%) 14.4 17.0 25.6 24.1 initiatives and employee
Operating EBIT margin (%) 11.0 12.0 21.3 20.4
Net margin (%) 6.3 12.2 20.0 20.0 rationalization
Effective tax rate (%) 12.6 19.2 19.7 20.5
Dividend payout on recurring profit (%) 0.0 0.0 0.0 0.0
Interest cover (x) 11.1 17.8 51.4 133.9
Inventory days na 0.0 0.0 0.0
Debtor days na 100.7 80.4 81.4
Creditor days na 132.2 82.5 83.4
Operating ROIC (%) na 21.9 38.4 43.3
Operating ROIC – WACC (%) na 3.3 19.8 24.7
ROIC (%) na 20.9 33.8 39.9
ROIC – WACC (%) na 2.3 15.2 21.3
ROE (%) na 17.1 19.2 18.6
ROA (%) na 11.8 16.2 16.0
* Pre exceptional, pre-goodwill and fully diluted
Note : FY10 numbers are BNPP estimates as we await the cash flow details
Sources: Satyam Computers; BNP Paribas estimates

5 BNP PARIBAS
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

Satyam Computers
Cash Flow (INR m)
Year Ending Mar 2008A 2009A 2010E 2011E 2012E
Recurring net profit 5,394 6,616 12,131 14,293
Depreciation 2,875 2,694 2,576 2,617
Associates & minorities 0 0 0 0
Other non-cash items 0 (1,249) (2,803) (3,674)
Recurring cash flow 8,269 8,061 11,904 13,235
Change in working capital 0 (6,410) (910) (289)
Capex - maintenance 0 (1,300) (1,579) (1,998)
Capex – new investment 0 0 0 0
Free cash flow to equity 8,269 351 9,415 10,949
Net acquisitions & disposals 0 0 0 0 Cash infusion of
Dividends paid 0 0 0 0 USD600m from Tech
Non recurring cash flows 0 0 0 0 Mahindra’s purchase of a
Net cash flow 8,269 351 9,415 10,949 42.7% stake in Satyam
Equity finance 0 29,083 0 0
Debt finance 0 (3,327) (1,164) (2,530)
Movement in cash 8,269 26,107 8,250 8,419
Per share (INR)
Recurring cash flow per share 12.27 6.86 10.13 11.26
FCF to equity per share 12.27 0.30 8.01 9.31
Balance Sheet (INR m)
Year Ending Mar 2008A 2009A 2010E 2011E 2012E
Working capital assets 22,791 17,120 19,617 22,221
Working capital liabilities (19,376) (7,295) (8,882) (11,197)
Net working capital 3,415 9,825 10,735 11,024
Tangible fixed assets 13,746 12,516 11,658 11,178
Operating invested capital 17,161 22,341 22,393 22,202
Goodwill 0 0 0 0
Other intangible assets 0 0 0 0
Investments 6,818 6,818 6,818 6,818
Other assets 1,000 1,000 1,000 1,000
Invested capital 24,978 30,158 30,211 30,019
Cash & equivalents (3,730) (31,813) (43,413) (55,772)
Short term debt 0 0 0 0
Long term debt * 8,220 5,220 4,220 1,690
Net debt 4,490 (26,593) (39,193) (54,082)
Deferred tax 0 0 0 0
Other liabilities 0 0 0 0
Total equity 20,488 56,751 69,404 84,101
Minority interests 0 0 0 0
Invested capital 24,978 30,158 30,211 30,019
* includes convertibles and preferred stock which is being treated as debt
Per share (INR)
Book value per share 30.40 48.28 59.04 71.55
Tangible book value per share 30.40 48.28 59.04 71.55
Financial strength
Net debt/equity (%) 21.9 (46.9) (56.5) (64.3)
Net debt/total assets (%) 9.3 (38.4) (47.5) (55.8)
Current ratio (x) 1.4 6.7 7.1 7.0
CF interest cover (x) 14.6 1.7 32.4 82.0
Valuation 2008A 2009A 2010E 2011E 2012E
Recurring P/E (x) * 12.6 17.9 9.8 8.3
Recurring P/E @ target price (x) * 16.6 23.6 12.8 10.9
Reported P/E (x) 12.4 17.6 9.6 8.1
Dividend yield (%) 0.0 0.0 0.0 0.0
P/CF (x) 8.1 14.4 9.8 8.8
P/FCF (x) 8.1 331.4 12.4 10.6
Price/book (x) 3.3 2.0 1.7 1.4
Price/tangible book (x) 3.3 2.0 1.7 1.4
EV/EBITDA (x) ** 7.1 7.1 4.6 3.4
EV/EBITDA @ target price (x) ** 9.3 9.6 6.7 5.1
EV/invested capital (x) 2.8 3.0 2.6 2.1
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Note : FY10 numbers are BNPP estimates as we await the cash flow details
Sources: Satyam Computers; BNP Paribas estimates

6 BNP PARIBAS
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

HISTORY OF CHANGE IN INVESTMENT RATING AND/OR TARGET PRICE

Satyam Computer Services (SCS IN)

(INR) Date Reco TP
Satyam Computers Target Price
13-May-08 BUY 570.00
618.00
26-Nov-08 HOLD 250.00

518.00 18-Dec-08 REDUCE 138.00

1-Sep-09 BUY 140.00

418.00

318.00

218.00

118.00

18.00
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
Abhiram Eleswarapu started covering this stock from 12 May 2008
Price and TP are in local currency
Valuation and risks: Main risks to our DCF-based TP are unexpected demand weakness and adverse forex movements.
Sources: Bloomberg, BNP Paribas

7 BNP PARIBAS
ABHIRAM ELESWARAPU SATYAM COMPUTERS 30 SEPTEMBER 2010

DISCLAIMERS & DISCLOSURES

ANALYST(S)
Abhiram Eleswarapu, BNP Paribas Securities India Pvt Ltd, +91 22 6628 2406,
abhiram.eleswarapu@asia.bnpparibas.com.
Avinash Singh, BNP Paribas Securities India Pvt Ltd, +91 22 6628 2407, avinash.singh@asia.bnpparibas.com.
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Recommendation structure
All share prices are as at market close on 29 September 2010 unless otherwise stated. Stock recommendations are based on absolute upside
(downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If the
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Rating distribution (as at 27 September 2010)
Out of 489 rated stocks in the BNP Paribas coverage universe, 304 have BUY ratings, 136 are rated HOLD and 50 are rated REDUCE. Within
these rating categories, 4.61% of the BUY-rated companies either currently are or have been BNP Paribas clients in the past 12 months, 4.41% of
the HOLD-rated companies are or have been clients in the past 12 months, and 10% of the REDUCE-rated companies are or have been clients in
the past 12 months

Should you require additional information please contact the relevant BNP Paribas research team or the author(s) of this report.
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