On Paper, as of September 30,2008 the Assets of Satyam were Rs 8300 crs…after adjusting for the overstated assets and understated liabilities as confessed by the now disgraced Promoter Chairman,Ramalinga Raju the networth of Satyam drops to @ Rs 1200 crs….With 67 crore shares of Face Value Rs 2 in existence,the book valueper share would get restated to around Rs 20…Satyam’s Share Price has dropped from yesterday’s closing of Rs 40 to Rs 20 this morning reflecting this
But will Satyam’s Share Price drop to Zero or move up from here !? Will Trading be stopped in it ?
The Andhra Pradesh Chief Minister has written to the Prime Minister to form a Committee of I T Stalwarts,Narayan Murthy from Infosys,Azim Premji from Wipro and Ramodarai of TCS to salvage Satyam and save the jobs of over the claimed 50000 Satyam Employees
However,as I look at it right Now even this restated networth of Rs 1200 crs of Satyam looks suspect and will be under threat on two accounts
Ramalinga Raju has confessed that for years he inflated Revenues and Profits in Satyam ..It has to be investigated as to when did he start doing so and what is the quantum of inflated revenues and profits…If he inflated Revenues,then it would mean perhaps that the Debtors have been overstated and further adjustment may not be required here…but Profits may convert to losses and therefore Reserves may need further adjustment to reflect the quantum of overstated profits…This would reduce the Networth further and posssibly make it Negative…This would mean the Book Value of Rs20 too would appear overstated
Law Suits have already been filed in USA on behalf of ADR Shareholders and law suits will surely follow in India too….Claims in such suits runs into Hundreds of Millions of Dollars…Satyam may not be solvent enough to tackle such Claims…Right Now such Claims are Contingent
There are some other tainted issues too…like the Real Number of Satyam Employees…Management claims 53000 employees….It is suspected that this figure is grossly overstated…Also there is strong views on the Credibility of Satyam Managers…Most IT Companies are smply in no hurry to absorb them…In fact Infosys has categorically said it will not touch tainted Satyam and has also instructed it’s HR Dept not to entertain Satyam Employee Resumes
It is difficult for any Potential Buyer to only absorb the Operating Business of Satyam without exposing themselves to the sword of growing Contingent Liabilities
As a seperate Legal Entity,Satyam is toxic to touch right now…However what will happen is that It’s Lifeline,it’s Clients will review their relationship with Satyam and in all probability migrate to other IT Companies as the risk of staying with Satyam may be too high…Satyam resources may be directed towards fighting for survival rather than Client Servicing…To maintain some level of Continuity,what is possible is that Satyam Teams working on Genuine Client Business may also migrate to the Clients directly or to the IT Company that has taken over from Satyam to serve the Client
The Nightmare for Satyam has only just begun…..difficult to see any potential Buyer taking the risk to buyout Satyam,given the growing contingent liabilities…therefore cannot advice to buy into Satyam at Rs 20
Remember the risk that some crazy NSE Member took when he bought Millions of Shares of the tainted Global Trust Bank at Rs 9 to Rs 11 a few years ago in the wrong belief that a white knight or the Government will bail it out
It is important that a Market Player must also keep himself abreast of and be well versed in Accounting,Auditing and Legal Issues and their Implications for all stakeholders that arise in such situations.
This Bank ceased to exist and with this all the Equity Holdings died out too….Interestingly the auditors here too were Price Waterhouse…The crisis happened because here too the Auditors were unable to spot the Huge Hole of the Non Performing Assets, which was not provided….In 2004 RBI referred the matter to ICAI for taking action against the Auditors…It’s 2009 and ICAI yet has to come out with it’s report…reason is perhaps because Price Waterhouse Partner ,Gopalakrishnan has been serving on the ICAI Council for the past 11 Years in his Fourth Term !
So Please understand all the Risks involved in Buying into Satyam Now at Rs 20…If Contingents play out,you will see even this Rs 20 be wiped off…If you’re betting that there will be a salvaging buyout and therefore it’s very tempting to buy in to Satyam at Rs 20,remember it looks difficult to visualise that any potential buyer will be willing to be exposed to contingencies that could run into Hundreds of Millions of Dollars
Buyer Beware….Satyam seems to be on the Course to Implode