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Continuing with the Satyam saga, voices are now being heard which seem to suggest that Satyam would have survived if the merger plan with Maytas was carried forward instead of being stumped at the start. After all, the argument goes that since Satyam had no cash, atleast it would have assets on its books and all would have been hale and healthy.

Is that so simple? First of all, it?s in hindsight from which we know that Satyam had no cash on its books. I personally don?t believe that the entire money was fictitious and there has to be some amount of siphoning which has happened since hiding hundreds and then thousands of crores from everyone is not a small thing and one that has according to the confession lasted nearly 7 years. One also has to remember that Maytas itself it seems became aggressive over the last couple of years. Hence, it would have to be more of siphoning than just cooking the books on long term.

Coming back to the topic, there are two things that I personally dislike about the statement of Satyam having been saved if Maytas was allowed to be merged. First is the fact that even now, no one knows who did the valuation for Maytas and more importantly Maytas Properties. Hence, one can never be sure if those assets are in themselves real or just worthless papers.

Second and more importantly that would have allowed the Raju?s to go scot free. Afterall, if property markets would not have fallen, Maytas Properties would not have been in trouble and if Maytas Properties were not onto hard times, the Raju?s could have just filled back the deficit from their profits and no one would be the wiser.

While I applaud the move to dissolve the old board and come up with a new board, I am not sure what the current board?s intentions are. I for one believe that if they are really looking at safe guarding the interest?s of its employees, the best way forward will be to have a fire-sale of every domain they are working with the agreement being that the persons working on those project will be taken aboard by the company buying the domains verticals. This will have two positive impacts. One, customers will be confident that there will be no gap in the service they are being provided right now and Secondly, the morale of the Employees will be boosted.

Instead, if the board tries to revive the company, it will not only be a action in futility, but also open a Pandora?s box about government intervention in private entities. Afterall, thousands of companies go bust every year, hundreds of employees are thrown out, what is so special about Satyam other than the numbers would be a question to ask.

A very happy Shankranti and Pongal to all readers.

Prashanth

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

I had not heard that name, you may not have too until he did this. What is so interesting about?him is that he unlike many firms that screw?small people with these ponzi schemes managed to screw the biggest and some of the best including firms like Nomura, BNP Paribas among others.

What?s more surprising is that this scheme was not run for a few days or a few months but instead lasted years together with not many picking up even a whiff of a scam. That?s very surprising to say the least because Hedge Funds / Big HNI’s have dedicated persons for Risk Management and a sustained month after month positive market with very low volatility is just no possible.

Most of them will now claim to be misled, but the fact would remain that they were Greedy when they should have been fearful (yeah, yeah, you have heard that before ). There is never a strategy that can give you sustained positive performance day after day, month after month and year after year.

This is because, every strategy has its time limits. If a strategy is yielding freebies, it will provide the returns until a lot more money uses the same strategy / technique at which point, risk outmatches return.

The Madoff strategy was simple in itself. He claimed to use what he called and I quote “A split-strike conversion strategy using proprietary ‘black box’ quantitative techniques to minimize portfolio volatility?. What he was actually trading was using simple Collar Strategy where returns are good when Volatility is low and Trend is Bullish. Once trend starts being a bear, you can hardly make money in this strategy since your stocks will fall more than what your Sold Call Option can sustain and hence giving negative returns. Infact, most of the time, unless a bit of bias is taken {By way of selling a Deep Out of the money Calls to ensure more gains when stock moves up or purchasing Deep Out of the Money Puts to ensure small investment in the Put Options}.

What can we conclude from above? Well, there is no Holy Grail and if something is not believable, it may not be true in itself as well.

Take Care

Prashanth