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Satyam Computers inspite being among the Top IT companies has never commanded the valuation that its peers like TCS, Wipro & HCL command. This is majorly attributed to lower levels of lower margins, lack of transparency, lower level of corporate governance among others.

Satyam today has provided one hard reason as to how easy they can take the public for a ride. Satyam Computers is an IT firm with pure focus on Information Technology. The last time they ventured into a Buyout was with Sify which burnt them bad. They got out of Sify after quite a few years unable to provide either direction or the funds needed to sustain the company. Today, it seems to have committed total hara kiri by taking over a company floated by their family members.

Maytas Infrastructure is not a small company. It made a IPO in Sept 2007. For the half year ended Sep 2008, it had Sales of 737 Crores and Net Profit of 36 Crores which gives it a Net Profit Margin of around 20%. Not very bad, but one has to consider that till not, Infra companies have quite a order backlog but are short of cash to execute many of them. How many will survive to the next decade is a questions that has not many answers.

The name Mytas itself is reverse of satyaM. Maytas is in the Infrastructure area, which over the last few months has taken a heavy toll in terms of loss of contracts, risk due to escalation of costs, non-availability of finance among others. Infact, save for Mytas, most Infra company stocks have performed very poorly on the market. Why Mytas has not fallen so much is a question to be asked now that Satyam is buying out the promoters (who are promoters of Satyam itself).

Just read that CLSA has downgraded Satyam and I expect further downgrades / Sell Calls down the lane. Sterlite tried to do another kind of trick (Demerging and consequent increase in promoter stake at virtually no cost). Stock was hit quite badly.
Though Sterlite cancelled the whole transaction, it did not make much of a impact as FII’s and DII’s sold stock anyway.

With Satyam nearly exhausting all its Cash into this venture, it will start facing difficulties in its core business itself since it cannot grow in-organically and will not have the strength to sustain a elongated downturn if it happens.

Prashanth

Tags: Satyam, Scam

This entry was posted on Tuesday, December 16th, 2008 at 9:06 pm and is filed under News & Views. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.