I studied the results and updates by Satyam and purchased a few hundred shares of Satyam at 91. I will buy more, if it dips to 79-80 levels.
Satyam has been ravaged and plundered and looted from the core. Its head count has been almost halved. It has scores of class action and other types of lawsuits pending on its head, which means that for the next 2-3 years, the company still has to pay out hundreds of crores of Rupees to settle claims. It has started a fight with our Income Tax department and there may be further misfortune for the company in terms of additional tax claims by IT department, mounting to crores of Rupees. It has filed a loss of Rs 154 crores in FY10. The upcoming merger with Tech Mahindra is not a big morale booster for employees because there may be additional layoffs. Satyam's house has been badly burnt.
And that is exactly the reason why I bought it. I know I have to be patient for a year or 2. But in the end, I will reap a multi-bagger profit from a previous blue chip. I firmly believe in the principle: "Buy companies with intrinsic core strength, when they are in trouble and you know that they will come out of trouble because of their core strength and you will be richer than others around you".
And as Satyam restarts from Ground zero, it has already shown its intrinsic strength. It has been a mammoth task for them to pour over the details of nearly 7600 complicated client contracts, retrace their financial worth, intelligently settle the 'hot' disputes, try to out the house back to order, while still scourging for growth and additional business. The management has done an excellent job in re-stating accounts as much as they could and the stated results are quite encouraging. Rs 154 crores loss is minimal compared to Satyam's turnover of over Rs 5000 crores. They have nearly Rs 2300 crores in cash, which is quite comforting. They have already settled or accounted for the UPAID SYSTEMS claim and total remaining claims liability will not be more than Rs 700 crores, which will drag for next 3-4 years; at an average of Rs 175 crores per year, which is quite manageable. Headcount at 27000 is not bad for a company, which was knocked out so badly. The company is actively seeking to recruit, which means that they have lot of work in hand; and if they could add 44 new clients during this 'burnt' period, they will add much more in another 2 years. They are pioneers with a sort of monopoly in a brand new vertical called SPORTS VERTICAL and they successfully partnered (IT PARTNER) the FIFA World Cup. They have received inquiries from the hosts of NBC Championship (the biggest and richest basketball tournament in the world) and many other prominent sports event sponsors. They are reviving their presence in the financial and banking sector with new/revived clients in US and Australia. Merger with Tech Mahindra will happen and will take time; but even before that, the 2 companies will work synergistically during the bidding and RFP phase for new clients. Tech Mahindra will serve as a reliable and trusted partner and ally.
So in a nutshell, as per my opinion, irrespective of how the market has reacted, we have received authentic good news from Satyam, which holds promise for the future. More good news than bad news I should say.
Markets will realize this slowly and come back to this counter. Till then, I will wait patiently like a fisherman waits with bait.
As I had written couple of months before, Satyam should really be trading at 130, not at sub-hundred levels. My medium to long term (9-12 month) target for now is 130 and I will buy more if it dips to 80. In the longer term, I am confident that Satyam will take time, but will eventually go back to the levels of 400-450, where it truly belongs. If you had purchased Satyam near 100, wait for it to dip further to around 82-85 before starting to average.
Hope this report is helpful. Thanks.
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