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Tech Mahindra/ Mahindra Satyam
Tech Mahindra was represented by Mr. Manoj Bhat (VP—Corporate Planning).
Mahindra Satyam was represented by Mr. S Durgashankar (CFO).
Demand outlook: Investor concerns mainly centred on revenue retention
and growth prospects for Mahindra Satyam, given the company is yet to fully
recover from the aftermath of the disclosure of fraud by its erstwhile
Chairman, Mr. Ramalinga Raju. Investors also expressed concerns on the
revenue outlook for Tech Mahindra given the lack of growth in the British
Telecommunication (BT) account.
Supply concerns: Management admitted to high attrition in Satyam, which
we highlighted as one of the key concerns for the company. Tech Mahindra
is also witnessing high attrition rates at present (~30%), and management
expects attrition for both companies to remain high due to the tight supply
scenario.
Merger details: While Tech Mahindra’s management is keen on a merger
with Mahindra Satyam, legal liabilities in the US due to class action suits and
the Rs12bn in pending claims from 37 companies could lead to potential
delays in the merger timeline. While management is confident of being able
to provide detailed financial information for Satyam’s H1 FY11 results to be
announced in November, the announcement of a merger between Mahindra
Satyam and Tech Mahindra could take longer.
UBS view: We retain our Neutral rating on Tech Mahindra and Sell on
Mahindra Satyam with a view that we prefer the holding company (Tech
Mahindra) over Mahindra Satyam. We believe a strong turnaround in Satyam is
already priced into the current stock price.
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