Satyam looks to ride IT wave with mega deals

Long-term contracts are always a prize catch in the IT industry and most companies hanker after them. The list of benefits derived from a large contract include steady revenue stream, better margins and improved visibility on future earnings.

Satyam Computer’s recent client win of Applied Materials is one such deal. The deal size is expected to be at around $200 million, spread over five years. Satyam will provide application development, maintenance, support and business transformation services to Applied Materials as a managed service. More long-term contracts will help the company hedge the risk associated with discretionary spends, which currently are around 40% of the revenue.

Satyam is working hard to change that ratio. The company had clinched four large deals of over $100 million last year. These include deals from Nissan, General Motors and Qantas Airlines. The company is said to be pursuing 10 large contracts of over $50 million in the current year.

Even if half of them come to the company, it would boost Satyam’s reputation among investors and lead to a re-rating of the stock. The stock trades at a discount to its rivals — TCS, Infosys and Wipro.