Tuesday, June 9, 2009

[Investors Please Listen] Satyam disclosure and its implications


Key points 

  • Satyam Computer Services (Satyam) has publicly disclosed the financial information that it had shared with the selected bidders in March 2009. The information has positively surprised the street for two reasons. One, the company's operating profit margin (OPM) of 17.5% is much ahead of the street expectations and the margin indicated by Satyam founder, B Ramalinga Raju in his confession letter. Two, Satyam's annual revenue run rate for FY2009 is likely to be in the region of $1.3-1.4 billion after taking into account the monthly revenue run rate of Rs676 crore in February 2009 and the business attrition rate of 15-20% in the subsequent months.
  • Rough calculations based on the disclosed information suggest that Satyam is trading at reasonably attractive valuations of 8-9x its earnings. The latest development has positive implications for not only the Satyam stock but also some other stocks such as Tech Mahindra (due to its stake in Satyam), Mahindra and Mahindra (M&M; as Tech Mahindra is its subsidiary) and Larsen and Toubro (L&T; due to its substantial investment in Satyam). 
  • However, it should be noted that the financial information is derived from Satyam's internal management information system (MIS) and is unaudited. Thus, the numbers are not reliable. Moreover, the uncertainty about the possible liabilities (to tune of $1.5 billion) from the various lawsuits filed against the company will continue to be a drag on the stock's valuations.

 
Click here to read report: Sharekhan Special

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