Satyam: The clean up - 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?  

Satyam: The clean up

Oct 5, 2002

In a move to address one of the most pressing concerns, Satyam Computers has decided to dilute its holding in its loss making subsidiary Sify to 35% (presently 52.5%) through fresh equity dilution. As a result of this development, Satyam will no longer have to consolidate Sify’s financials with its own from FY03 onwards. To put things in perspective, in FY02 Satyam posted an EPS of Rs 14.3 on a stand-alone basis. However, on a consolidated basis the EPS was a meager Rs 2.5. This was on account of losses in Sify, which wrote off Rs 4,472 m towards diminution in value of investments in and

With the dilution of its stake in Sify, Satyam’s consolidated EPS will almost get aligned with its stand alone EPS. The marginal difference will be due to the company’s 100% subsidiary VisionCompass. Earlier, as a part of it’s clean up act, the company had dissolved four of its foreign subsidiaries in 1QFY02 and had written off Rs 408 m towards the closures.

According to the deal, SOFTBANK Asia Infrastructure Fund (SAIF), and VentureTech Solutions Private Ltd. (VentureTech) will buy US$ 20 m newly issued shares of Sify. A SAIF controlled company (SAIF Investor) has agreed to buy approximately 7.5 m newly issued ADRs (one ADR is equal to one equity share) for a sum of US$ 13 m. Therefore, the price of one ADR works out to US $1.72 per ADR. Further, VentureTech will invest US$ 3.5 m for approximately 2 m equity shares at the same price. VentureTech will have an obligation to invest US$ 3.5 m additionally in equity shares on or before 30th April 2003 at the same price. As a result of the new issues, Sify’s equity base will expand from 23.2 m shares to 34.8 m shares. However, the inflow of cash consequent to the deal will be limited to Sify and will not come into Satyam’s books.

Investor Amount (US$ m) No of shares (m) Price/ADR (US $)
SAIF Investor 13.0 7.6 1.7
VentureTech 3.5 2.0 1.7
VentureTech 3.5 2.0 1.7
Total 20.0 11.6

In 1QFY01 (April to June 2000), Satyam had sold a 1.6% (347,200 shares) stake in Sify to Government of Singapore Investment Corporation for a consideration of US$ 49.3 m. Thus, one ADR was valued at US$ 142. The recent dilution is therefore at a significant 99% discount to the valuations seen at the height of the technology boom.

Valuations FY03E EPS (Rs) CMP (Rs) P/E (x)
Satyam Computers 16.8 208.0 12.4
Infosys 143.5 3,500.5 24.4

At the current market price of Rs 208, Satyam Computers is trading at a P/E multiple of 12x its FY03 estimated standalone earnings. As the consolidated EPS, converges towards the standalone EPS, the stock could see some improvement in valuations going forward.

Equitymaster requests your view! Post a comment on "Satyam: The clean up". Click here!


More Views on News

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

4 Indian Companies in the Exploding Drone Market (Views On News)

Sep 1, 2021

The futuristic drone industry in India holds immense promise now that the government has come out with new rules.

More Views on News

Most Popular

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.

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.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


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


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