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Feudalism rocked Satyam - Views on News from Equitymaster
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  • Apr 20, 2009

    Feudalism rocked Satyam

     Rs 100 invested is now worth
    Source: Trend
    Stockmarkets across Asia have started off the week on a mixed note. While gains are seen in China and Hong Kong, stocks in Japan and Singapore are trading in the red currently. This comes after a successful culmination of last week’s proceedings, when Asian markets had climbed for the sixth consecutive week, the longest streak of gains in more than two years.As far as the Indian markets are concerned, while the BSE-Sensex (consisting of large cap stocks) has gained over 35% since its lows in the first week of March, the BSE-Midcap and Smallcap indices have gained even higher - up 36% and 38% respectively during this period.

    But, is the worst behind us? Click here to let us know

    Last week, as you know, was an important one for the Indian IT (information technology) industry and investors in it. While on one hand, Infosys laid the ground with its FY09 results and a petered down FY10 estimates, Tech Mahindra went on to win the bid for the beleaguered Satyam by offering to pay Rs 58 per share for the fraud-hit IT company.

    Today’s Economic Times carries an interview with Mr. Keshub Mahindra, the Group Chairman of Mahindra & Mahindra, which is the promoter company of Tech Mahindra. Mr. Mahindra has outlined his belief that his company has got away with Satyam at a ‘walk-away’ price given the tremendous value addition this deal can create for shareholders in the long run. He said, "We could have bid lower. But I want to say it once more that it was a strategic decision and not a speculative one. It provided us with a platform to align the businesses of Tech Mahindra and Satyam."

    We are of the belief that while this win will help Tech Mahindra in diversifying its software services business to a much wider canvas as also reduce its revenue concentration (BT currently forms around 60% of the company’s revenues), the questions that arise are numerous. Will Tech Mahindra be able to absorb and manage a company more than double its size? And will it be able to manage the cockroaches that are yet to come out of Satyam’s cupboards, especially given the uncertainty surrounding its actual numbers, and the fate of the numerous suits filed against the company in foreign courts?

    Anyways, in an another interview with the same newspaper, Mr. N.R. Narayana Murthy, the founder chairman of Infosys, now a close competitor of Tech Mahindra, says that a feudal structure was responsible for the collapse of Satyam. "What happened in Satyam is that it was a huge scandal. Nobody could stand up and say, what is happening is wrong. Even those who thought what was happening was wrong did not have the courage and were not in an environment to say that it was wrong," believes Mr. Murthy, and rightly so.



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