TRILOKEKAR
Transcript of TRILOKEKAR
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On 22 January 2009, CID told in court that the actual number of employeesis only 40,000 and not 53,000 as reported earlier and that had been allegedlywithdrawing INR 20 crorerupees every month for paying these 13,000 non-existent employees .
The New York Stock Exchange has halted trading in stock as of 7 January2009. India's National Stock Exchange has announced that it will removeSatyam from its S&P CNX Nifty 50-share index on 12 January.
Shares fell to 11.50 rupees on 10 January 2009, their lowest level sinceMarch 1998, compared to a high of 544 rupees in 2008. In New YorkStock ExchangeSatyam shares peaked in 2008 at US$ 29.10; by March 2009 theywere trading around US $1.80.
Global footprint spans 24 locations in 14 countries including 11 state-of-the-art development centres and 13 sales offices in Americas, Europe, Middle-east,
Africa and Asia-Pacific
Has grown rapidly to become the 5th largest software exporter in India
(Nasscom, 2009) and 1st largest Telecom Software Provider in India (Voice &
Data, 2009). It has more than 33,524 employees .
ACQUISITION
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y Satyam was established in 1987.
y 4th fastest growing IT company in India.
y 9 % market share
y 40,000 employees
y Revenue $2.1 billion
y It is the first company of India listed in three International Exchanges i.e. NYSE,
DOW and EURONEXT
INTRODUCTIONINTRODUCTION
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IntroductionIntroduction
IT serviices Founded 1986
Headquarters Pune, IndiaTech Mahindra Ltd. (TechM) formerly Mahindra
British Telecom (MBT) is an Information Technology service provider companyheadquartered in Pune, India It is a joint venture between Mahindra &Mahindra Ltd (M&M) and BT Group plc, UK with M&M (Mahindra and
Mahindra) holding 44% and BT holding 39% of the equityKey people Anand Mahindra (Chairman)Vineet Nayyar(Vice Chairman)Sanjay Kalra (CEO)
Products Telecom Software & Solutions Services Information technologyservices, BPO and solutions
Revenue $ 984.9 million (2009)
Tech Mahindra has grown rapidly to become the 5th largest softwareexporter in India (Nasscom, 2009) and 1st largest Telecom Software Providerin India (Voice & Data, 2009).
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Consequences leading to acquisitionConsequences leading to acquisition ² ² satyamsatyam
y Maytas Acquisition.
y Investors Aborted.
y Board Members Resigned.
y On 7th Jan., 09, Chairman resigned afterannounced involvement in fraudRaju confessed
that Satyam's balance sheet of 30 September2008 contained:
y inflated figures for cash and bank balancesof 5,040 crore (US$ 1.09 billion) asagainst 5,361 crore (US$ 1.16 billion) crorereflected in the books.
y an accrued interest of 376 crore (US$81.59million) which was non-existent.
y an understated liability of 1,230 crore(US$ 266.91 million) on account of funds wasarranged by himself.
y an overstated debtors' position of 490 crore(US$ 106.33 million) (as against 2,651 crore
(US$ 575.27 million) in the books).
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S
A
TY
A
M
CURRRENT ASSETS
LIABILITIES
ACTUAL DEBT
WAS 2161
OVERSTATED490 CR.
ACTUAL CASH
IN BANK WAS
321 INFLATED
5040 CR.
NO ACCRUED
INTEREST
376.34 CR.
UNDERSTATED
LIABILITY 1230Cr. Which was
ARRANGED BY
MR.RAJU
ARTIFICIALLY ADDED 588
OPERATING PROFIT ADDED 588
INCREASINGTHE CASH
RESERVE ONLY FOR Q2 ALONE
TO 588
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Balance sheet of Satyam computer ltd.
SOURCES OFSOURCES OF FUNDSFUNDS AS ON AS ON
30.09.0830.09.08
ADJUSTEDADJUSTED
BALANCE SHEETBALANCE SHEET
ADJUSTMENTADJUSTMENT
SS
1.1. Shareholders fundsShareholders funds
a. Share capitala. Share capital
(share application money(share application money, pending), pending)
b.Allotmentb.Allotment
c.Reserves and surplusc.Reserves and surplus
134.70134.70
2.762.76
8392.238392.23
134.70134.70
2.762.76
((--)415.47)415.47
2. Loan Funds
a. secured loans
b. unsecured loans
____________________
30.49
234.80
______
8794.98
_______
30.49
1464.80
_______
1217.28
_______
1230.00
_______
1230.00
________
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APPLICATION OF FUNDS AS ON
30.09.08
ADJUSTED BALANCE
SHEET
ADJUSTMENT
S
1. Fixed assests
2. Investments
3. Tax
4. Current assests
a. sundry debtorsb. cash
c. accrued interest
d. Loans
LIABITIES
Net current assests
TOTAL APPLICATION OF FUNDS
1381.10
618.64
118.75
2651.365312.62
376.34
502.22
2166.05
6676.49
_______
8794.98
1381.10
618.64
118.75
490.00272.62
-
502.22
2166.05
901.21
_________
1217.28
1381.10
618.64
118.75
2161.365040
376.34
-
-
5775.21(differenc
e)
________
7577.7
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SATYAMTHE HIDDEN TRUTH
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Pre acquisitionPre acquisition ² ²satyamsatyam sagasaga
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INDIA·S STEP TO SAVEINDIA·S STEP TO SAVE
SATYAMSATYAMy The Indian Government has stated that it may provide temporary direct or
indirect liquidity support to the company
y Govt. has appointed new board of members for Satyam consisting of heavy weights
from India's corporate sector.y Satyam is seeking bank loans to help cover salaries and other operating expenses
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WHO WILL ACQUIRE?WHO WILL ACQUIRE?
TechMahindra Limited
Wing 1, Oberoi Estate Gardens,
Chandivali, Andheri (E),
Mumbai 400 072, Maharashtra, India.
Telephone: +91 22 6688 2000
Fax: +91 22 2847 8959
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Acquisition dealAcquisition dealVenturbay Consultants Private Limited, a Tech Mahindra subsidiary,emerges as the highest bidder to acquire a controlling stake in Satyam
Tech Mahindra will be paying 17.6 billion Indian rupees (US$354million) for a 31 percent stake in Satyam, through a preferential issue of equity. It will also acquire another 20 percent equity through a publicoffer to other Satyam shareholders.The move by Tech Mahindra toacquire a majority stake in Satyam may put off clients from outside thetelecommunications industry, according to analysts. But some of Tech
Mahindra's key managers have experience in other industries fromtheir previous jobs, Nayyar said.
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Income statement techIncome statement tech mahindramahindra
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How deal wentHow deal went
y Tech Mahindra acquired 31% of the equity of Satyamfor a consideration of Rs 1,756 crore in a biddingprocess beating other interested companies like thebetter-known Larsen & Toubro.
y At that time Tech Mahindra was felt to have boughtSatyam for a consideration that seemed a wee bit toomuch. But things began to change the moment thedocument that was shared with the bidders wasmade public last fortnight through a corporateannouncement filed with the stock market.
y Reflecting a relatively robust performance by Satyamafter Raju, the company scrip jumped to the region of Rs 78-80 (for a Rs 2 share).
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DealDeal
y Although Tech Mahindra was supposed to be an underdog in the
race to acquire fraud-hit Satyam as against the heavy weight L&T,
the company went away with the trophy with highest bid of Rs.58
per share from the three bidders. The list of other two edged out
bidders include L&T and Wilbur Ross with their respective bid at
Rs.45.90 and Rs.20 per share. With this deal Tech Mahindracatapults into 4th largest IT Company in India after TCS, Infosys and
Wipro.
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Inside storyInside story
y This on Tuesday was quoting above Rs 73, whichis a decline from the high reached last week butnevertheless well above Rs 58, the open offerprice of Tech Mahindra to acquire shares of
Satyam. Under the takeover norms, companiestaking over other companies are obliged to buy20% of the equity of the acquired company by apublic offer. Tech Mahindra·s open offer to buy
Satyam shares will close on June 1, but commonsense suggests that nobody will sell at a price thatis well below the prevailing price in the market.
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Modus operandiModus operandi
y Acquires 42.7% stake in Mahindra SatyamTech Mahindra acquired a 42.7% in MahindraSatyam after it did not receive a satisfactoryresponse to its open offer for the Hyderabad-
based firm, which was priced at Rs58 a share.y Thus, the company·s total investment in Mahindra
Satyam works out to over Rs2,900cr, with ithaving acquired a total of over 50cr shares in the
firm, almost all of it being equity dilution owing toadditional issuance of shares.
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After acquisitionAfter acquisitionShares in Satyam, which has a market value of $2.5 billion,
ended up 7.3 percent at 179.10 rupees, far outperforming a
0.6 percent gain on the Mumbai market. Tech Mahindra rose
4.2 percent to 295.45 rupees.
Satyam stock slumped to a 5-year low late last month after
its botched attempt to buy two firms in which the
outsourcer's founders held stakes and after news it was
barred from World Bank business.
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ConsequencesConsequences
y Margins fall on pricing pressure, absence of one-time items: In 1QFY2010, Tech Mahindrarecorded a 183bp qoq fall in EBITDA Margins on theback of pricing pressure and the absence of one-timecosts last quarter of around US $5mn. On a yoy basis,
Margins fell 49bp.y
- Higher Interest, negative Other Incomepound Bottom-line: Tech Mahindra recorded asignificant 39.2% qoq decline in 1QFY2010 Bottom-
line (excluding one-time items) owi significantlyhigher Interest costs due to a Rs2,380cr loan takento finance the Satyam acquisition and negative OtherIncome owing to Forex losses. Yoy, Bottom-line de-grew 45.8%. ng
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Financial analysis of acquisitionFinancial analysis of acquisition
y Our analysis shows that the Satyam acquisitioncould prove to be EPS-accretive for TechMahindra given disclosure of the aboveinformation.
y
We believe that the acquisition could add asignificant 42.9% to Tech Mahindra·s FY2011E EPS.However, the law suits remain a major concernand the likelihood that the actual audited resultscould differ materially from those stated remains
a key risk.y Appreciation of the Rupee against the US Dollar
of late is another risk that needs to be borne inmind.
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contdcontd,«,«
y Satyam releases key financial data; numberssignificantly above expectations, to be 43%accretive for Tech Mahindra·s FY2011E EPS
y
Mahindra Satyam in June released some key financialdata pertaining to 3QFY2009 and January andFebruary 2009. The company had shared this datawith all the companies that had bid for it.
On a consolidated basis, Net Sales stood at Rs2,414cr in
3QFY2009 with EBITDA Margins of 14.7% and Net Profit of Rs160cr. The company had a Cash balance of Rs373cr at the end
of March 2009 and Accounts Receivable of Rs1,911cr. The data
released by the company is fairly heartening and comes in above
expectations.
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Legal aspectLegal aspect
y Tech Mahindra will go to the Company LawBoard (CLB) for further directions, but oursense is that Tech Mahindra will be contentto run Satyam with 31% equity.
y However, as per the agreement with thegovernment, Tech Mahindra can go in for apreferential issue in its favour, if the public
offer is not subscribed to.y Raju had run Satyam with 8.5% equity
shares since 2006 and a little over 18%shares since 1992.
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Future of techFuture of tech mahindramahindraTech Mahindra to record a 1.5% CAGR in Top-line overFY2009-11E, while Bottom-line is expected to clock a 21.9%compounded de-growth over the mentioned period (TechMahindra consolidated excluding Satyam financials). At the CMP,
the stock is trading at 16.3x FY2011E EPS. However, includingMahindra Satyam, valuations fall to 11.4x FY2011E EPS. Giventhe release of key financial data by Satyam and the subsequentnew facts coming to light, we upgrade the stock as a majoroverhang with respect to Satyam·s acquisition has been done
away with.
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ContdContd««
y For the staffers of Satyam to be retained by TechMahindra too it will be a boon although they wouldbe sort of under foreign rule what with 5-10% of thetop leadership of the company slated to be inductedfrom the ranks of the acquiring company.
y For the 8000-odd staffers of Satyam consigned to thevirtual pool, it is a "lose all" scenario. Though they willget 40% of their basic salary for six months, they havefor all practical purposes been sacked.
y Satyam had a total staff strength of 38,000. Eight
thousand is a significant percentage of this total. ThatTech Mahindra was able to say bye to them ³ andthus save on considerable costs ³ is another pointerto the fact that Tech Mahindra got Satyam cheaply.