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Peek into Satyam’s Restated Results – Merger ?

September 30, 2010

Ramalinga Raju’s erstwhile Satyam Computer Service now Mahindra Satyam after a whopping 500 day accoutning marathon has re-stated results. Here is a take on them it from the investor’s perspective.

Company recorded revenues of Rs54.8 bn for FY2010; (2) EBITDA margin of 8.3%; (3) net loss of Rs1.2 bn after including extraordinary item of Rs4.2 bn. Extraordinary items pertained to severance compensation for employees (Rs0.9 bn), forensic investigation expenses (Rs1.1 bn) and write down in value of assets of subsidiaries (Rs2.2 bn), (4) cash and cash equivalent of Rs22 bn at end-March 2010, which would reduce to Rs19 bn after payout of Upaid dispute (5) accumulated losses of Rs27.5 bn; management has not clarified whether tax shield will be available on it.

Provision to the tune of Rs15.4B disclosed in the restated financials amounting to 25% of the balance sheet embeds some conservatism, in our view. We view the merger of Tech Mahindra and Satyam as bringing few revenue benefits to either party (some G&A and back-office savings might be possible at best).

The TRUE Employee Count of Satyam – Satyam indicated an employee count of 27,470 as of March 2010. Strong wage inflation and resumption of variable salary increases will preclude any significant margin expansion in FY11.

And the big overhang on the Management is the liabilities of the class action law suits in the United States.

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