Poll: Should L&T take over Satyam? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Poll: Should L&T take over Satyam?

Jan 29, 2009

India's largest engineering company by sales, Larsen & Tarbo, is making its intentions clear with respect to its investment in the fraud-hit Satyam Computers. Yesterday, "In a hurriedly arranged conference call," as Mint puts it, L&T's management said that it will go all out to acquire a controlling stake in Satyam and get a seat on the board.

  • Voice your views on L&T's investment in Satyam by participating in our poll. Click here!

    L&T recently increased its stake in Satyam to 12%, from 4% earlier. This hike was supposedly done with a view to give L&T a greater say in the rescue of the software firm and is precursor to the former's acquisition of the latter.

    As a matter of fact, L&T already has a presence in the technology sector through its subsidiary, L&T Infotech. This business forms around 5% and 9% of the company's consolidated sales and profits (FY08) and has grown at a compounded annual rate of 35% over the past 6 years. While these growth figures might seem in line with the broader IT sector's growth over these years, the fact is that L&T has never been known to have any kind of competitive advantages through this business. This is unlike its engineering business, where the company competes well with some of the best known global engineering behemoths in the world.

    L&T's Chairman Mr. A.M Naik had recently commented, "My biggest worry is that nothing is going to happen over the next three months, and Satyam will be dead by then. The need of the hour is to save Satyam from disintegration. For shareholders, it is important that its value is not eroded any further. We are more than ready to help if we are approached by the government agencies."

    While Mr. Naik's predicament is understandable given that L&T is sitting on a mark-to-market loss of over Rs 4 bn due to a slide in Satyam's share prices, the fact is that L&T is trying to aggressively diversify again into a field where it does not have much experience. The company is known for its engineering skills. But do we see it as a software superpower in the future? Definitely not!

    L&T has always been a difficult company to value given its diverse business interests and ever-changing focus. Valuing the stock is like valuing moving parts. This is the reason we have always given valuations to the company that have been at a discount to its peers.

    We had last recommended L&T in March 2008, believing that the froth surrounding the stock's valuations was cleared. The company's financial performance post this recommendation did not disappoint us either. However, we believe that the unwarranted aggressiveness that it has shown with respect to raising its investment in Satyam is detrimental to the interest of investors in the company.

    L&T has raised its stake in Satyam from around 2% a month back to 12% now without knowing the 'real' worth of the latter. Satyam to us seems like a can of worms that is yet to be opened fully. L&T's latest investment in Satyam has been akin to an irrational investor buying a stock at a lower price just to average his cost and in the meantime giving no weight to a company's core fundamentals.

    L&T's management must know better than us where it is trying to get into. But its investors will not like the company to dilute its strengths on the basis of which they had invested into it in the first place i.e., a leadership position and focus in the engineering sector.

    Incidentally, unlike Satyam that had an 8% promoter shareholding when the mess was unveiled, L&T does not have any promoters per se. This is probably the reason the company (of this size) has strayed into unrelated areas so many times in the past. Financial institutions led by LIC (holds around 17% stake) are leading shareholders in L&T. We remember of LIC not raising its voice when the promoters of Reliance Infrastructure (erstwhile Reliance Energy) were playing with minority shareholders money at the start of 2008. Will India's leading institutional investor's silence again wreck havoc with your investment in L&T?

    As for our subscribers, the company is slated to announce its third quarter results tomorrow. We shall subsequently update you with our latest view on the company.

  • Voice your views on L&T's investment in Satyam by taking our poll. Click here!

  • Equitymaster requests your view! Post a comment on "Poll: Should L&T take over Satyam?". Click here!


    More Views on News

    TEXMACO INFRA 2020-21 Annual Report Analysis (Annual Result Update)

    Nov 15, 2021 | Updated on Nov 15, 2021

    Here's an analysis of the annual report of TEXMACO INFRA for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of TEXMACO INFRA. Also includes updates on the valuation of TEXMACO INFRA.

    SHANTHI GEARS 2020-21 Annual Report Analysis (Annual Result Update)

    Nov 15, 2021 | Updated on Nov 15, 2021

    Here's an analysis of the annual report of SHANTHI GEARS for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of SHANTHI GEARS. Also includes updates on the valuation of SHANTHI GEARS.

    G R Infraprojects Makes a Bumper Listing on Bourses. Big Gains for IPO Investors (Views On News)

    Jul 19, 2021

    GR Infra shares were subscribed over 100 times in its IPO.

    Infrastructure Boom Ahead. Here are 3 Ways to Play It... (Views On News)

    Aug 24, 2021

    India is expected to become the third largest construction market next year. For that, it needs huge investments.

    G R Infraprojects IPO to Hit the Market on 7 July. All You Need to Know (Views On News)

    Jul 1, 2021

    G R Infraprojects' IPO will be an offer for sale of up to 11.5 m shares. There will not be any fresh issue of shares.

    More Views on News

    Most Popular

    A Complete Guide for Beginners on How to Invest in IPOs

    As an investor, you must have endeavoured to find a suitable opportunity for investing in IPOs. But do you know what is an IP...

    Infosys vs TCS: Which is Better? (Views On News)

    Nov 26, 2021

    In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

    This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

    Nov 24, 2021

    Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

    How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

    Nov 15, 2021

    This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

    Don't Sell these Stocks if the Market Falls (Profit Hunter)

    Nov 17, 2021

    These are the 3 types of stocks that you should not sell in a market crash.


    Become A Smarter Investor
    In Just 5 Minutes

    Multibagger Stock Guide 2022
    Get our special report Multibagger Stocks Guide (2022 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Nov 26, 2021 (Close)