According to reports, Satyam Computer Services has decided to dilute its stake in its subsidiary, Satyam Infoway. The company is stated to be in talks with investment bankers to offload a 3% stake in the subsidiary, which is listed on the NASDAQ.
Satyam Computer Services is one of India's leading software exporters with interests in software applications (54% of turnover), solutions (35%) and e-commerce (11%).
Satyam's decision to offload a 3% stake in Satyam Infoway is likely to be a money spinner. Given current valuations, the stake on sale could raise as much as Rs 10 bn for the company and that too without it losing control of the subsidiary.
The funds raised by the company could then be utilised in a number of ways that could contribute to increasing its competitive advantages. A decision to retire debt could significantly lower its interest burden (264 million in FY99) and thus contribute to higher profitability.
Alternatively, the company could use the funds for making acquisitions to boost growth and acquire skills that it does not currently possess. This step would enable Satyam to either expand its areas of operations or simply consolidate its leadership position in its existing areas of operations.
Finally, the company could invest a part of the proceeds in existing operations by improving the infrastructure and making various other investments that would benefit it in terms of better products and solutions.
Analysts have rated Satyam as a buy primarily for two reasons.One because of the company's depth in the vertical business domains of banking and insurance services as well as telecom and engineering services.Secondly, the subsidiary/JV model of Satyam has paid off(for instance Satyam holds 60% of Satyam Infoway and there are other subsidiary/JV companies, which can be listed or sold.
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