Lack of enough financial data hits Satyam valuation

Since it costs a lot to win, and even more to lose,
You and me bound to spend some time wonderin��� what to choose
Wait until that deal come ���round,
Don���t you let that deal go down, no, no

In more than one way, this 1971 Grateful Dead song captures the mindset of those bidding for Satyam Computers. Starting with the owning up of the financial fraud by the promoters of the company early this year, the Satyam saga has reached a decisive stage. An announcement on the successful bidder that is expected on Monday will effectively close the lid on Satyam, which was once India���s fourth largest IT services vendor.

While there is no clarity on either the number of bidders or the floor price, ET talked to some experts to determine a reasonable valuation for the company and what lies ahead for the successful bidder. An obvious concern cited by some of those who were interested was the paucity of recent financial data.

Satyam���s promoter, Ramalinga Raju in January confessed about revenues and profit numbers being fudged over several quarters, which has led to a difficulty in determining the company���s current valuation. Satyam is also facing lawsuits filed by its ADR holders in the US which could have substantial financial implications.

Out of all the possible bidders, analysts think L&T is well placed to leverage the deal. SBICAP Securities��� research head Anil Advani says: ���It will provide synergies to L&T���s existing IT business���. L&T Infotech provides IT services to clients like Chevron, Hitachi, and Lafarge.

For Tech Mahindra, a merger with Satyam will offer a diversification of its service verticals. Currently, Tech Mahindra earns its revenue by providing IT services to global telecom clients; BT is its single largest client. If Tech Mahindra wins the bid, it will get access to Satyam���s diversified clientele.

The deal will equally benefit another possible bidder Cognizant, who is said to be joining hands with private equity firm, WL Ross. A merger with Satyam will boost its 24% growth rate further and help it move up the pecking order of IT exporters.

On the pricing front, SP Tulsian, a veteran investment advisor, thinks the fair value of Satyam is about Rs 60 per share. His method is a 50% discount to the assumed annual revenue of Rs 8,000 crore to which another Rs 4,000 crore is added which is the approximate market value of Satyam.

After removing Rs 4,000 crore as the possible outgo for the US lawsuits, the company���s valuation, he thinks, is Rs 4,000 crore. Satyam���s ADRs on Thursday traded at $2.65. This reflects a value of Rs 66 of the underlying share, which is at a substantial premium to Satyam���s stock price of Rs 47.2. By this, bidding range may be Rs 60-72, according to him.

For Tech Mahindra, integration in the midst of Satyam���s legal issues will not be easy. That���s not all. ���It may have to stretch its balance sheet to acquire Satyam and may need to convince BT on this,��� says Mr Tulsian.