Hyderabad: Software firm Satyam Computer Services Ltd plans to delist from Euronext Amsterdam, a constituent exchange of NYSE Euronext, it said in a statement on Tuesday.
Control lever: Tech Mahindra chairman Anand Mahindra (left) and chief executive officer Vineet Nayyar at a news conference in Mumbai on Monday. The firm won the bid for control of Satyam Computer Services. Prashanth Vishwanathan / Bloomberg
The move was announced one day after Tech Mahindra Ltd won a bidding contest for control of the Hyderabad-based company in a sale that, analysts said, could set off a wave of consolidation in India’s information technology (IT) sector.
The software services exporter also said on Tuesday that it did not currently intend to delist from Indian stock exchanges or the New York Stock Exchange.
Satyam’s American depository receipts (ADRs) declined 15% to $2.25 (around Rs112) in New York on Monday, the most since 27 February. One ADR represents two ordinary shares.
The company is facing at least a dozen class action suits in the US, filed on behalf of investors who suffered losses as Satyam ADRs tanked after its founder B. Ramalinga Raju confessed to a Rs7,136 crore accounting fraud on 7 January.
Tech Mahindra, a venture of automobile firm Mahindra and Mahindra Ltd and BT Group Plc., will be given management control of Satyam after it deposits Rs1,756 crore with the company for a 31% stake. It will also have to make an open offer for another 20% stake, as mandated by securities law.
According to analysts with market research and consultancy firms such as TPI Advisory Services India Pvt. Ltd, Gartner Inc. and Zinnov Management Consultants Pvt. Ltd, there is considerable scope for consolidation in the Indian IT sector, given that increasing margin pressures and tough market conditions are making survival difficult for medium-sized firms.
“If the deal and the integration go successfully, it could definitely give a boost to consolidation in the sector,” said Sid Pai, partner and managing director of outsourcing consultancy firm TPI.
The current market conditions have also made valuations attractive, creating an opportunity for consolidation. “Now firms have a window of time available, as valuations are currently attractive, and if they can secure funding, we should be seeing some degree of consolidation,” Pai said.
The Sensex, the Bombay Stock Exchange’s bellwether equity index, lost some 52% in 2008 and the top Indian IT firms, except for Infosys Technologies Ltd, lost more than the benchmark.
Since January, the Sensex has risen 13.68%. This time around, however, except for HCL Technologies Ltd, the top Indian IT firms have outperformed the index.
While acknowledging that room exists for consolidation and that the Satyam-Tech Mahindra deal can boost the process, the principal analyst with market research and consultancy firm Gartner Inc. in India feels that the biggest challenge will be funding.
“There is a possibility that the Satyam-Tech Mahindra deal could act as a trigger to consolidation among Indian IT players. Most of tier-II and tier-III (IT firms) are finding it tough to survive in the current market conditions, given the margin pressures,” said Diptarup Chakraborti of Gartner.
“However, even if they have identified target companies to acquire, getting requisite funding will be the main challenge,” Chakraborti said.
Karthik Ananth, an analyst at Zinnov, said the real trigger for IT sector consolidation would be recession in the US and Europe, the main markets for India’s technology outsourcing industry.
“In the next 6-12 months, there will some action in the M&A (mergers and acquisitions) space but companies are currently in a wait-and-watch mode. How Tech Mahindra integrates Satyam with its operations can potentially give a sense of direction to such companies,” Ananth said.
Bloomberg and Reuters contributed to this story.