The Hindu Business Line : Brokerage houses give thumbs down to Satyam

Chennai, Dec. 17 Despite the deal being called off, Satyam Computer’s credibility took a knock among brokerages, which almost recommended immediately a sell on the company.

“Despite Satyam’s reversal of its decision to buy out common-promoter-owned realty and construction businesses, questions will linger on, perhaps for a long time. Why did the board not oppose the move? Who voted for and against the resolution? Was the board truly independent?

“Business fundamentals were already deteriorating, and we are reducing earnings 14 to 17 per cent for FY-10-11, but these are now peripheral to the central issue. The harm done to Satyam’s credibility, so arduously repaired in the last few years of business improvements, is likely to be long lasting,” said a CLSA report.

According to a Citi report: “We reiterate our sell/high risk with a target price of Rs 170; while the deal cancellation is positive, investor confidence has been dented and that would, in our view, reflect in a de-rating of the stock. We recommend switching to Infosys, our only buy among the tier-one players.”

Cash squeeze

An Edelweiss research report said: “If indeed Satyam and its board felt enthusiastic about entering the infrastructure and real estate space in India, then why did the company not prefer a three-way stock-based merger of the entities without taking cash out of the system?

“What’s more, as we discuss later on, the deal has been valued in such a manner that the company is not required to seek the approval of Satyam’s shareholders. Notably, the net debt of Maytas Infra shot up to Rs 640 crore in FY-08 from Rs 180 crore in FY-07. Much of this is of a short-term nature which we believe places this entity in an extremely tight position when liquidity is otherwise severely squeezed.”

Edelweiss has downgraded the stock to sell, and the report added: “Satyam’s investors could be seen to be much more activist in pressing for reconstitution of the board and/or management.”

Doubt ‘lingers’

“While the deal has been called off, we believe that, several concerns will linger on with Satyam,” said a Kotak Securities report, which advised investors to reduce the stock with a revised (downward) price target of Rs 253.

The report added that “we believe that, the management focus will continue to remain in doubt especially after the company committed more than available cash to invest in un-related businesses. In our opinion, there can possibly be some discomfort at some clients’ end because of the implied shift in management focus away from the core business. There may be a re-thinking on enhancing relationships with Satyam in the medium term.”

More Stories on : Stocks | Satyam Computer Services Ltd | Software

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Tata Capital unveils expansion plans with Brand Promise

Special bonds buoys fertiliser stocks

Probe news hits ADAG stocks

Brokerage houses give thumbs down to Satyam

SEBI okays exit options for RSEs

Satyam accumulates short positions

ACC (Rs 486.30): Sell

Day Trading Guide

Thomas Cook rights issue at 35:100; priced at Rs 35.50

Hurrah for shareholder activism!