In the disclosures made by Satyam , one thing comes forth – we need to change our perception about Satyam being in the league of Infosys and Wipro. We have to now change our perspective and look at Satyam like any other mid cap IT company. This change in outlook, from a frontline IT to mid cap IT company helps us take a more objective view. Let’s face it – the fact that Satyam is where it is today, notwithstanding the damage done by Ramalinga Raju, is indeed quite good.
A look at the numbers in the table given below, shows that things have gone bad but not as bad as we had expected. Or rather, we had already made up our minds for the worst and in that context, what came forth is not bad.
The biggest question in everyone’s mind is what to do about the open offer of Tech Mahindra? The offer is scheduled to open on 12th June 09’ and will close on 1st July 09’ and has been made at a price of Rs.58/share. Tech Mahindra will buy a 20% stake. After these disclosures, Satyam has already moved up to the levels of over Rs.66/ share on the BSE. For investors, financials of the company would not have much meaning, it would be all about making money. At this point of time, investors tendering in their shares at this lower open offer price is very doubtful. This then raises two options – either Tech Mahindra ups its open offer price or as per the rules, if the offer is not fully subscribed, it has the option of a further preferential issue from Satyam to lift its stake.
Then the question which comes to mind is – if Tech Mahindra ups the offer price, is the share worth above the current market price? Based on the current financial disclosures, assuming that the company has an annualized revenue of Rs.10,000 crore and giving due credence to the loss of clients, high attrition rate and the Rs.1230 crore claims made by 37 companies, it would be prudent to assume a NPM of around 10%. Based on this, the annualized net profit would be around Rs.800 crore and on an equity of Rs.134.70 crore, annualized EPS would be around Rs.6. This, on the current market price gives us a PE of around 11. It is pointless trying to compare it with the PEs of Infosys and Wipro but if we look at the mid cap IT companies, then it seems reasonable priced, with a slight margin of probably going up further. But anything above 14 PE would be more than fully priced.
More than Satyam, based on the disclosures, it is apparent that it is a very good deal for Tech Mahindra. The synergistic advantages would be very good and allows Tech Mahindra to move away from the shadow of British Telecom and emerge as a more, well rounded IT company. At this juncture hold on to both Satyam as well as Tech Mahindra as a clear picture will emerge in a day or two.
| (Standalone) | JAN 09 | FEB 09 |
| REVENUE | 681cr | 676cr |
| NET PROFIT | 4cr | 52cr |
| OPERATING PROFIT | 61cr | 118cr |
| OPM (%) | 8.96 | 17.46 |
| Total orders at $380 mln as on | ||
| Cash balance of Rs.373 crore as on | ||
| 23 clients lost with billing of $70 mln | ||
| $164mln Forex contracts outstanding as on | ||
| Forex loss at Rs.110cr as on | ||
| Consolidated NP for Oct-Dec 08’ at Rs.160cr | ||
Disclaimer:
(These financials have been prepared by the company with data collected using the company's internal management information system, which may not be adequate and books of accounts, making certain management estimations, assumptions and approximations. The figures are unaudited.)