Satyam – what is the value left?
It appears almost certain now that there are no saviors for Satyam Computer Services in the immediate future. Infosys, the highly respected software major of India, has gone record that they will not be interested in taking over a tainted company as Satyam.
Tech Mahindra, rumored to be interested in Satyam till the fraud broke out, has withdrawn from that idea.
There is no public statement coming from anyone for the take over the Company. So far, there is no Indian Government announcement about any bailout (don’t confuse with any “bailout” for Mr. Raju, which is extremely remote) package for the beleaguered Company.
I only heard one voice in the past two days that talked about a future for Satyam, apart from the voice of the interim CEO Mr. Mynampati.
That voice was of Mr. Nilesh Shah, Deputy Managing Director of ICICI Prudential Asset Management Co. He suggested that the big investors should get together and explore the option of installing a new and capable management to retrieve the Company. But, no one else who were there in panel discussion with him on the television show even remotely echoed his voice.
Some of the panelists seemed to have a feeling that there are some intangibles in the Company which might interest other IT companies but none offered to make a guess.
What is my take?
I think that the Company has certain assets. What are they?
a) The workforce (53,000 as per Mr. Raju, but it is already 52,998, after resignation of Mr. Raju and the CFO V Srinivas)
b) The software products that Satyam might have developed or has a revenue share marketing partnerships. Below is an extract from a research report that the reliable www.equitymaster.com prepared in June 2007:
It recently formed an alliance with the US based Northrop Grumman for providing high-end engineering services to global players in the aerospace and defense space. The alliance targets to earn revenues of US$ 100 m over a few years, with revenue sharing being project specific. The company presently earns about 27% of its topline from the manufacturing domain and aerospace and defence vertical contribute about 15% to the pie. While the share may be small now, Satyam envisages a strong growth from this space over the long term.
Further, its partnership with “7hills” to offer end-to-end logistics IT solutions is also shaping up well. The partnership will cover strategy, process, and technology to customers across industry sectors in the Asia Pacific region. 7hills has over the years consistently provided cutting edge IT solutions in the logistics domain for warehousing, transportation, freight forwarding and terminal and port operations to leading names from various industries. The alliance will address the logistics requirements in various industry verticals including retail, manufacturing, automotive and logistics services providers. This alliance, which has evolved over the past year, manifests itself as a complete logistics solutions provider for companies, particularly those with operations in the key Asian regions.
Satyam has also entered into a strategic alliance with Temenos, a major core banking solutions provider from Switzerland, to implement its modular core banking systems. This alliance shall enable Satyam to help Temenos implement and serve as a systems integrator for the product “T24″ which is recognised as the world’s most technically advanced banking system and will enable banks to gain optimal value from robust Temenos products. Satyam’s growing popularity in the aeronautical engineering could be seen in its recent agreement with Hawker Beechcraft to provide high-end design, CAD CAM and PLM services.
We believe these deals are likely to be value accretive for Satyam in the long term as not only will these help the company create new domain competencies but will also offer it an opportunity to cross sell its range of offerings to new clients and geographies that these alliance partners bring along.
c) The genuine clients that Satyam has been servicing (as per Mr. Raju’s confession, Satyam has 185 of the Fortune 500 companies as its clients)
d) The internet portals the Company owns (www.walletwatch.com – Finance Portal, www.sify.com – multi-lingual India focused portal)
Will the above sound attractive for any cash rich company? I have my own doubts. Let us examine these one by one.
a) The workforce: We do not know how much of this work force is gainfully employed by the Company and how much are surplus, given the current global recessionary trends. Further, no Company, in the current global economic scenario would want to add to its staff strength even if they acquire the whole of Satyam. Further, recruitment standards of the IT companies should be considerably different.
Thus, even if someone takes over Satyam, it is unlikely that the entire staff will be retained. In addition to this, jolted by the Fraud revelation, many of the staff may already be fleeing to jump elsewhere ASAP, which would mean the good talent might be already up for grabs for the other IT majors and minors at lower salaries than what Satyam might be right now be paying or soon default from paying.
b) The software products that Satyam might have developed or has a revenue share marketing partnerships: This, in my opinion, holds some value for the buyer. But, without a stable workforce, already experienced in these products and services, any acquirer will discount the value due to lead time required to get tangible benefits out of the acquired products and services.
The revenue sharing partnerships may well get broken and the partners may already be considering moving towards someone else, to keep their reputation in tact. This again requires product understanding and synergy for anyone who would like buy these contracts. So, this may not fetch a great value, despite the existing revenue stream.
Irrespective of what is said above, an interested buyer would like to project the prospective income flows from these lines of activity before making a bid. That cannot happen overnight. One has to go through a process and unlike Mr. Raju, the other Company CEOs will take measured steps and take their Board and Management to confidence before making any bid and even then only after a valuation is done.
Thus, this will not take place immediately. Problem is, the longer this takes the worser it will get for Satyam. In my view, it is more likely that these customers will move to suitable alternative vendors in the course of time. One example is below:
Qantas Says Risk From Contract With India’s Satyam ‘Manageable’
By Madelene Pearson
Jan. 8 (Bloomberg) — Qantas Airways Ltd., Australia’s biggest airline, said its business risk from an information technology contract with India’s Satyam Computer Services Ltd. is “manageable”.
Satyam Chairman Ramalinga Raju resigned yesterday after saying he falsified earnings and assets, prompting a collapse in the stock of India’s fourth-largest software-services provider.
“At this stage Qantas assesses any risk to business as manageable,” a Qantas spokesman said in comments e-mailed to Bloomberg. “In the event that Satyam is unable to continue services, Qantas has the ability to activate alternative internal and external arrangement to enable the continuation of seamless services.”
To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net
c) The genuine clients that Satyam has been servicing (as per Mr. Raju’s confession, Satyam has 185 of the Fortune 500 companies as its clients):
These will be more afraid than anyone else, to stay with Satyam. They might consider that their reputation will be at stake if they are seen related to Satyam. In addition, they are duty to bound to their customers to provide a good service and support. With a mass exodus of staff looming large at Satyam and imminent resignation of more key management personnel, these services may get into disarray.
Most competitors may be already aware of the clients serviced by Satyam and may already be on the move to poach as well.
So, both the customers and the competitors, will try to move quicker than one would think. This will make this asset depreciate in value earlier than the time someone takes a decision to acquire.
d) The internet portals the Company owns (www.walletwatch.com – Finance Portal, www.sify.com – multi-lingual India focused portal): If it was year 2000, analysts would have put a value of even US $ 1 billion for this. In fact Satyam, sold Sify shares in 1999 catching the internet book at an attractive price. Today, Sify is a cash burner for Satyam. This link will show you the 2008 results . In my view, the internet services and data center services as also the portal do not provide any great value for any buyer. Better values are available in the form of more popular www.rediff.com. Today as per the listed price of the share, Sify’s market cap is US $ 77.9 million, which is not great while Rediff (Nasdaq: REDF) has a market cap of US $ 66.7 million.
As against these risk prone assets fast value depleting assets, Satyam is quickly building up fast growing liabilities that may come in the form of class action suits, employee settlements etc.
Thus, a very negligible value is left in the company for any investor compared to the 7 Jan 2009 closing market cap of INR 26.91 Billion (US $ 554.8 million).
With the share dropped from the NIFTY 50, Sensex and other indices, mutual funds that invest on index stocks will queue up to liquidate the stock bringing down the value of the share further. End of 9 Jan 2009, one may well find this share quoting well below INR 10 per share is my estimate.
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Hi Satyamurthy
I could not get a way to contact you other than this route.
Can you please email me when you get a chance, I am trying to setup a micro finance organization to help the people who are in need of money for their businesses. I will give you the details. Trying to find out, if I can partner with someone in India, for this execution.
thank you.
Hi Sathya:
Naukri job site has reported that already 20000 Satyam staff have registered for a job change. Now the news has come that it is paying Rs.500 crore as monthly salary and 10000 staff will be terminated to meet the cost. What a tragedy to working community, all of a sudden. Its really a big blow on their personal life, who once enjoyed aristocrat life style and now……….?
This is like catching water from a pipe that is full of holes. One can only catch that water that comes out of the pipe passing all the holes. (Pipe = clean company, Holes = Corrupt businessmen)
Rest of it that went down the drain through the holes, there is no trace of it.
The real solution is to close the hole so that water flows better through the pipe.
I was just going thru the Sep 2008 financials of Satyam and noted the exact thing. Rs.3,092 crore expenses on Personnel on standalone basis for six months ended 30 September 2008. If you divide this by 53000 employees, the average salary paid is Rs.94,339 per head. This is a mind boggling average for a software company. Most likely this also includes amortized cost of ESOPs given to staff, but still this figure is very big.
At their current liquidity the Company will not be in a position to sustain this kind of pay out for even Jan 2009, unless they make fast recoveries from debtors. For Rs.5,000 crore revenues generated in the first six months, Satyam carried a debtor balance of Rs.2500 crore. This means the collection lead time is 3 months.
They are facing a serious liquidity crunch.
Yesterday I was discussing the same with my friend too as to how the confidence level of the valued customers will go down and which in turn will have more impact on the further receivables side of Satyam.
The credibility of the services provided by Satyam will be in question now and will be the first question both for existing customers and the prospects. Words such as Confidence, Trust is no more available when it comes to “Satyam”. This almost looks like a paradox though it’s the true state of the company.
Also being from the IT industry, its no big deal for Satyam to repeat what he had done to World Bank (Resulting in 8 years ban) to the other customers too.
Whether Mr. Raju and group paved way for the growth or revival of Satyam or not but definitely this is one of those dream opportunity for any 2nd tier or 3rd tier company who will be almost at the client’s (Satyam’s) site or via phone to take over when we are in the discussion.
Have to wait and watch for the Clients transition news in the coming days.
Exactly. It may well provide an opportunity for more reliable and trusted companies to garner the clients of Satyam.
Hope there is no panic in your Company.
When did this gap initially start from? I mean what led to this gap that Raju later tried to hide. There must have been some losses incurred that instigated him to start thinking on these lines & manipulate things…..?????
I would think that this started sometime in 2003/04 when the market started going up.
Loss might not be the reason. Showing higher profit and thereby help create investor interest in the stock could have been one of the reasons.
Employee morale is week and exodus is like a time bomb ticking. The other top three will stay on the sidelines and let Satyam bleed to death instead of directly engaging in takeover activities however low the valuation is going to be. The number of companies in USA out of their genuine clientele that engage Satyam exclusively will be only handfull. The trend is to engage more than one indian oursourcer to spread their risk and to create competitive enviornment among the servicers to get some cost advantages. So these fortune 500 companies either concurrently working with other software firms or would have worked in the past with several Indian based IT firm. Worst case they will pick up the phone and start calling their contacts in other top three anyways. Due to their problem and employee exodus soon Satyam will be relegated to and lend itself to a automatic spiraling down path to failure. So there is no incentive for other big companies to reach out to their wallet to acquire Satyam at this point. It makes sence for TIER TWO Indian IT firms to take a close look because it will give them an opportunity to expand into their long sought after forture 500 clients. But that is a very risky road to travel, not sure how many second tier indian companies would like to take that kind of risk!
generally when a company is in trouble US companies stop paying payables to see what happens. it is likely that Satyam recievables are going to sharply increase contributing to the cash problem.
Ironic that there was no “satyam” in a company named for “truth.” The 50k employees is a liability, not an asset. The company cannot survive without downsizing. The webpages listed are not worth more than $100 in domain names. Many of the clients on board currently have already indicated that they wish to take the job elsewhere. There is little hope for Satyam. While we condemn Raju, we must also condemn the culture of corruption tolerated at all levels within India. More than ever, there needs to be strong central powers that investigate and prosecute such corruption on the local political side as well as with publicly traded companies.
[...] Satyam – what is the value left? [...]
Ironic nails it best.
50K Employees are a big big liability now because of the below
a. Most of them are fake / not qualified dead wood. The bench proportion was big in Satyam for eg:- everybody in sholinganallur satyam was playing table tennis and carrom most of the day. Their skills are not marketable
b. The 143 out of Fortune 500 is most likely a lie. There arent that many clients in Satyam (even Infy and TCS wouldnt boast such things. I will check this). When client base is known to be overstated..employees become a liability
It is now more than 3 months and there is yet no news on the re-stating of Satyam Balance Sheet.
Looks like there is “nothing right about the left side” of the balance sheet and there is “nothing left on the right side” of the balance sheet.
- T.P.Anand
[...] There is no value left in Satyam! [...]
What is the present position?? Any updates on the investigation??
People’s attention has been totally diverted towards IPL and General Elections and looks like everybody has forgotten about the Satyam Fraud……….
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