When Mahindra Satyam?s share price rose 5% in early trade on Friday to hit a 52-week high of R88.35, it was a sign of victory for the company?s top management. The soaring scrip ? just a day after the software firm announced a 56% year-on-year rise in quarterly net profit?was proof that the turnaround story had now entered its final stages. A repair job was underway ever since erstwhile Satyam Computer founder Ramalinga Raju admitted to an accounting fraud in early 2009, which some regard as India?s biggest corporate scandal ever. So when its June quarter results beat market expectations and cheered the markets, it served as a reminder to the continuing strong performances dished out by the firm in which not many saw any ray of hope, not so long ago.
While announcing its results on Thursday, Mahindra Satyam revealed that it had won at least three large contracts this year including two in the April-June period. Led by growth in the manufacturing vertical, the company?s clientele swelled to 372 from 314 in the previous quarter. Analysts were all praise for the company, not unexpectedly. ?The company has continued to deliver operational exuberance with healthy volume growth,? said Angel Broking?s Ankita Somani. This is exactly what the company management would have hoped to hear. Its chairman Vineet Nayyar did not hide his excitement. ?With this quarter, we have successfully ended our three-year transformational journey, recording progress on the back of strong fundamentals, focus and investments. We are confident of taking forward our momentum,? he said.
In 2009, when Tech Mahindra won the bid for Mahindra Satyam, industry experts had hoped for a miracle. They were not completely convinced whether Tech Mahindra could pull Satyam out of the woods. As it turned out Mahindra Satyam performed admirably and it is now clear that Tech Mahindra has a winner on its hands. When the merger between the two outfits gets completed, it will be a force to reckon with. In any case Mahindra Satyam was always better placed with its diversified set of clients. Tech Mahindra?s over dependence on the telecom sector was always a worry. Many had regarded it as a one horse pony with BT?s overshadowing presence. So getting Mahindra Satyam into its scheme of things has been a boon.
For the merger, the companies had announced a share swap ratio of 8.5:1. There was a view that this was not an ideal reflection of Satyam?s strengths and hence not in the interest of Satyam?s shareholders. But it does not seem to be a topic of debate anymore, so we?ll leave it at that. The combined entity will have a revenue of nearly $2.5 billion and that?s what matters. This will enable it to enter bids which it always hesitated to join in.
Much of the credit for this should go to chairman Vineet Nayyar and CEO CP Gurnani. This has been a long, hazardous journey. Back in December, 2008, when Ramalinga Raju announced that Satyam will use R5,000 crore in cash to acquire Maytas Infra and Maytas Properties, investors immediately sensed that something was amiss. Satyam had to then call off the deal. Soon after, the truth about cooked books came out and all hell broke loose. The corporate affairs ministry allowed the Company Law Board to supersede the Satyam Board, and the government took on the responsibility to select a strategic partner for Satyam in an unprecedented attempt. The government elected three elite members to the Satyam Board? HDFC chairman Deepak Parekh, former Nasscom president Kiran Karnik and former SAT chief C Achuthan. The end result was Tech Mahindra emerging the winner of the bid for Satyam. At R58 per share, Tech Mahindra acquired a controlling stake of 51% in Satyam for R2,889 crore, valuing the company at R5,665 crore. Since then both Nayyar and Gurnani were under a microscope. Every move they made to turn around the company was keenly watched.
The combined entity is India?s fifth largest software player and the top three (TCS, Infosys, Wipro) will have to now bear with another tough player in the market. The new outfit will be headquartered in Mumbai and will have a headcount of over 75,000 employees. After the merger gets completed, BT?s stake in the merged entity will come down to 12.8% and its share of the revenue will come down to about 17-18% from the earlier 35% in Tech Mahindra. The merger will help the entity have a good foothold on in telecom, manufacturing, media and entertainment and retail. Geographically too, the footprint will get diversified with revenues from Americas at the 40% mark and that from Europe at 35%.
A turnaround has been scripted and well and truly executed.