Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Satyam: Smart moves - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 19, 2002

    Satyam: Smart moves

    Of the software majors, 3QFY02 could turn out be a turning point for Satyam. The company made a strategically critical move by tying up with CSC (Computer Services Corporation). This is perhaps for the first time that an Indian IT services company tied up with a competitor in the west.

    The logic behind the alliance is very simple. The European and American IT services companies are finding it increasingly difficult to compete with Indian majors. This is due to the fact that the Indian companies like Wipro, Satyam and Infosys provide the same services at a much lower cost, thanks to the advantage they have in terms of lower employee costs. Thus, CSC will now be able offer its services at a very competitive rate by outsourcing the work to Satyam. Satyam on the other hand, will be able to leverage on CSC’s brand and strong presence in the markets like US and Europe. Though the contract has started on a smaller scale it is likely to be ramped up in the future.

    Read more on the development

    The company also launched e-Valuate, a mobile insurance and loan recovery solution. Satyam's solution enables wireless connectivity between the mobile work force and enterprise systems. Increasingly organisations, especially, those in logistics are faced with the requirement of transferring data with the work force on the field. The recovery solution will target these kinds of organisations. However, it is mainly focused on financial institutions. By implementing e-Valuate these organisations can eliminate inefficiencies, decrease the risk of fraud, save costs and also improve the quality of service.

    Satyam broadened its service offering by tying up with Autonomy Corporation that provides infrastructure software for the enterprise. According to the agreement, Satyam will offer consulting and systems integration services to architect knowledge management solutions based on Autonomy's infrastructure technology. With organisations increasingly become knowledge intensive, the need to capture in the organizational know-how is gradually becoming critical to their performance. This is due to the fact that when key employees leave, certain amount of organizational knowledge is Iost, and organisation does suffer as a consequence.

    Autonomy's software has the ability to analyze text & voice, identify and rank main concepts within it. It can then automatically categorize, link, personalize and deliver the information. Thus, the technology helps in capturing, storing, analysing and retrieving unstructured information. According to estimates, unstructured information doubles in quantity every three months. Thus, Satyam hopes to tap this burgeoning need using Autonomy’s technology.

    It also added collaborative commerce solutions to its portfolio. Satyam tied up with Adexa provider of collaborative commerce solutions. Manufacturing organisations, especially, those that manufacture products need to co-ordinate information flow throughout the product development life cycle. Design needs to communicate with manufacturing and this department in turn needs to communicate with support. Apart from this, at any point of time, information exchange with support functions like procurement is also critical.

    Again the need to work closely with the suppliers and customers has given rise to a demand for software that will help commerce or business to be done in a more synchronized or collaborated way. Collaborative product commerce will result in increased efficiency and lower costs for the organisations. Companies are adopting collaborative commerce due to the fact that they work across geographical boundaries. Hence, the need for seamless information flow has become mission critical. Adexa's iCollaboration suite is a portfolio of optimization, collaboration and business process automation solutions that meet organizational needs of collaborative supply chain commerce.

    The company also won a contract from Reuters UK for software application maintenance and support services for Reuters IS (information systems) applications. The contract also allows Satyam to tap opportunities from other divisions and subsidiaries of Reuters worldwide. Satyam will provide software support, maintenance and development services for the IS department of Reuters.

    Satyam opened an offsite development centre at Sydney to provide IT services to local clients. The center will also host offshore projects for clients located in New Zealand and other countries in the region. The purpose of setting up the development centre in Australia is to tap the business potential in the Asia Pacific region. The region is expected to be one of the fastest growing markets for IT services. However, 3QFY02 numbers that have come in so far indicate considerable weakness in the region.

    The company also partnered with Johns Hopkins, Johnson & Johnson and Medtronic to provide IT services for specialty medical societies worldwide. Satyam picked up a stake in MedBiquitous Services. The company will create XML standards to build online communities. Satyam's initial investment will be US$ 1 m for a 7% stake and an option to increase it to US$ 2.5 m for a 14% stake. Satyam will also provide technical inputs to the company. The move is aimed at strengthening Satyam’s presence in the Healthcare sector.

    (Rs m) 2QFY02 3QFY02E Change
    Sales 4,266 4,300 0.8%
    Other Income 269 100 -62.8%
    Expenditure 2,794 2,881 3.1%
    Operating Profit (EBDIT) 1,472 1,419 -3.6%
    Operating Profit Margin (%) 34.5% 33.0%  
    Interest 7 10 42.9%
    Depreciation 293 314 7.2%
    Profit before Tax 1,441 1,195 -17.1%
    Tax 100 100 0.0%
    Profit after Tax/(Loss) 1,341 1,095 -18.3%
    Net profit margin (%) 31.4% 25.5%  
    Diluted number of shares 314.5 314.5  
    Diluted Earnings per share* 17.1 13.9  
    P/E (x)   19.6  

    We expect the company’s topline to grow by 1% sequentially. There is likely to be intense pressure on operating margins due to pricing pressure. Therefore, we expect operating margins to decline quite sharply. The company’s net profits are expected to fall by 18% on a sequential basis. However, this is due to the fact that the bottomline was higher in 2QFY02 on the back of other income. On a YoY basis, revenues are expected to grow by 31% and net profits are expected to grow by 25%. At the current market price of Rs 273, the stock is trading at a P/E multiple of 20x 2QFY02 estimated earnings. The stock price has run up quite sharply in the past few months on expectations of the company’s sale of stake in Sify. If the deal comes through at a favourable price for the Satyam, the stock price is likely to see further improvement.



    Equitymaster requests your view! Post a comment on "Satyam: Smart moves". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Jul 3, 2013 (Close)


    • Track your investment in MAHINDRA SATYAM with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks