Wednesday, January 7, 2009

Satyam Computers Company Update ; Suspend rating, target price post the shocker ; Rating Suspended ; Target : NA

Satyam Computers


Suspend rating, target price post the shocker

Rating Suspended


CMP: Rs179                      Target Price: NA

Another shocker from Satyam after the recent 'mis'happenings

Book value post the recent disclosure could be potentially negative. Do not rule out stock falling to sub Rs 20 levels

The possibility of a strategic takeover also dwindles as all past financial information could also be under question

'Low Market Cap, High cash' status no longer holds

High chances of collateral damage to sector's premium valuations as well as Indian markets

Suspend Rating, Target Price


Another devastating disclosure from Satyam

Satyam in a recent press release has stated that it's financial statements had gaps like (1) Cash and Bank Balances were inflated  by Rs 50.4 bn , (2) Overstated debtors position of Rs 26.5 bn ( vs/ an actual position of Rs 4.9 bn) and (3) Undisclosed, Understated liability of Rs 12.3 bn. If these numbers were to be adjusted to company's reported book value of Rs 125 as on September 30'08 , the company new book value could be negative.

Jan 10'09 board meeting rendered meaningless 

Satyam was to hold a board meeting on Jan 10'09 to consider several measures to restore investor confidence which has been dented after the proposed infra related diversification received disapproval from investors. We had been indicating that Satyam's offshore strength as well as well as several Fortune 500 client roster remained attractive for both strategic/financial investors to step in. However with the recent damaging revelation from Satyam we believe even historical financial details could be overstated. Further we believe that the damaging revelation quashes all our belief of any value in Satyam's stock and it's attractiveness for strategic/financial investors.

Collateral Damage to sector's premium valuations

We believe that the current event will inflict collateral damage to the sector's premium valuations vis –a-vis broader markets as well as could dent foreign investor faith in other Indian companies.

Suspend rating, target price

We had been arguing over the past few days that Satyam's 'Low Market Cap, High cash Balance' was an appeal for both strategic/financial investors given Satyam's strong offshore capabilities and notable client roster. However with the damaging revelations from the company, we believe that the argument does not hold any longer.

We suspend our rating and target price on the stock.


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