The Mahindra group, the new owner of Satyam Computers and the largest shareholder in Tech Mahindra, is set to merge the two companies after June 2010. This will transform the combined entity into an Indian Information and Communication technology powerhouse.
The merger of Satyam and Tech Mahindra can happen after Satyam’s accounts are re-stated. The Company Law Board (CLB) has given time till June 30 2010 to complete the restatement of accounts. Global audit firm KPMG is re-stating Satyam’s past accounts to reflect the true financial health of the firm. Both companies have a lot of synergy and the combined entity will fuel business growth.
As per the estimates, together, both entities could have revenues of around $2.2 billion i.e. around Rs.10,500 Cr which is more than double the FY09 revenues of Techmahindra, Rs.4357 Cr. This will push up the Techmahindra’s share price from current levels of Rs.940 or so. I would recommend accumulating the stock. Also read Tech Mahindra to be benefitted from Satyam acquisition & other postings.
Mahindra Satyam’s operating margins are on the rise as cost-cutting measures are starting to bear fruit. They have cut costs by rationalizing workforce and saving on-lease rentals on commercial space.
Satyam Computers was ranked the country’s fourth-largest IT exporter before the scam broke out and TechM is the country’s sixth-largest IT exporter. With most of their services being in complimentary areas, While TechM is focused on offering services to the telecom industry and Mahindra Satyam has broad capabilities across a number of industries, including financial services and manufacturing. Thus, Tech Mahindra will benefit from the merger as the single dimensional telecom company will be able to expand its client base. Once Tech Mahindra has access to Satyam’s clients, the companies can provide a range of services in various verticals.
Under the Mahindra umbrella, regaining lost clients will not be a mammoth task. Satyam’s revenue could be around $1.2 billion, going forward. Also Satyam was in advanced stages of talks with the UK mobile payments services provider Upaid for a settlement. The overall market signals for the IT services sector is positive now and the company is seeing more traction in the BPO segment.
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