Satyam tanks in face of financial concerns3 min read . Updated: 26 Nov 2009, 10:18 AM IST
Satyam tanks in face of financial concerns
Mumbai: Shares of Satyam Computer Services Ltd fell 13.28% during the day on the Bombay Stock Exchange a day after the revelation by the Central Bureau of Investigation, or CBI, of an additional Rs4,739 crore fraud in the company.
The shares closed 10.9% down at Rs90.55 each. The exchange’s benchmark index closed 0.4% up at 17,198.95.
On Wednesday, investment advisory CLSA Asia-Pacific Markets put out a report titled Unsteady Ship with a sell recommendation on Tech Mahindra, citing risks posed by uncertainties surrounding the performance of Satyam.
“Tech Mahindra management now seems to be indicating a revenue run-rate of US$1.0-1.2 billion at Satyam, compared to US$1.1-1.3 billion in August and US$1.3 billion in May," said CLSA analysts Bhavtosh Vajpayee and Nimish Joshi in the report. “This continued downtick in commentary indicates that business stability at Satyam is still sometime away."
The report further said that “with clarity around Satyam’s financial health unlikely to emerge before June 2010, in our view, Satyam will find it extremely tough to attract and retain marquee clients". The analysts also hinted that the current positive hiring mood among other technology companies could make it tough for Satyam to retain talent.
Also See Triggering Decline (Graphics)
“The Company Law Board has granted time till 30 June. But our effort is to get the restated numbers out as early as possible. Everybody’s interests are best served by that," said a Satyam spokesperson.
Analysts also continue to be concerned by Satyam’s liabilities.
“While the class-action lawsuit could be a long-drawn-out affair, historical experience suggests that final settlement could be anywhere between 3% and 6% of total claims. Checks suggest that total claims have been in the US$1-1.5 billion range. Thus, cash outflow could be in the US$30-90 million range," CLSA’s Vajpayee and Joshi wrote.
“There are concerns about contingent liabilities and legal issues. Without clarity on the financials of the company, it is very hard to put a value on its shares," said Shashi Bhushan analyst with Mumbai-based brokerage Prabhudas Lilladher Pvt. Ltd. “Investors will be groping in the dark till such time there is more clarity."
On 17 November, Satyam (since rebranded Mahindra Satyam) informed stock exchanges that 37 companies sent legal notices seeking repayment of Rs1,230 crore of loans. Satyam responded by terming the claim “legally untenable".
On Wednesday, citing unnamed sources, CNBC TV-18 reported that Mahindra Satyam was looking at out-ofcourt settlements with the companies.
A spokesperson for Satyam said there was no such plan.
Interestingly, in his confession of 7 January, company founder B. Ramalinga Raju had admitted to arranging Rs1,230 crore from 37 firms for operating expenses at Satyam. He had also provided the names of the firms, several of which are privately held firms promoted by his family.
On Wednesday, a Satyam executive said customers had stopped deserting the company and that it was not offering discounts to win new deals. “We inherited 380 customers and we have not lost any. We have added about 36, so we have about 420 (as of now)," Atul Kunwar, president, global operations, said at the Reuters India Investment Summit in Bangalore.
It is the new management’s performance that could be encouraging some investors to trade in the stock, said Hardik Shah, technology analyst with Mumbai-based Asit C Mehta Investment Intermediates Ltd. Still, “nobody, can take a call on the share’s valuation at this point in time with any degree of certainty", he added.
Prabhudas Lilladher’s Bhushan also questioned the price Tech Mahindra had paid for Satyam.
“The difference in the bid price offered by an experienced investor like Wilbur Ross and the winning bid from Tech Mahindra should give you an indication of the vast differences in the perception of risks involved," he said.
Tech Mahindra’s winning bid of Rs58 a share was nearly thrice the offer of Rs20 a share made by private equity firm WL Ross and Co. Llc. At Rs58 a share, Tech Mahindra had agreed to pay Rs2,889 crore to acquire a 51% stake in the fraud-hit company. Engineering firm Larsen and Toubro Ltd (L&T), which was also bidding for Satyam, had made a bid of Rs45.90 a share.
Last week, L&T sold a 2.32% stake in the information technology company for around Rs306 crore, a month after the lock-in period for holding the shares expired. The lock-in period was part of the terms and conditions of the bid process. L&T still holds a 4.58% stake in Satyam.
The latest fraud, according to CBI, is over and above the Rs7,136 crore fraud disclosed by Raju on 7 January, which put Satyam at the centre of the largest corporate fraud investigation by multiple agencies in the country. This takes the total extent of the fraud to Rs11,875 crore.
Graphics by Sandeep Bhatnagar / Mint