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http://www.kotaksecurities.com/pdf/dmb/MorningInsight22032012.pdf
MAHINDRA SATYAM LTD (MSL)
PRICE: RS.78 RECOMMENDATION: NA
TARGET PRICE: RS.NA FY13E P/E: 9X
Merger with Tech Mahindra approved; We terminate coverage on the stock
q The Boards of Directors of Mahindra Satyam (MS) and Tech Mahindra
(TM) have approved a proposal to merge Mahindra Satyam with Tech
Mahindra along with certain wholly owned subsidiaries of Mahindra
Satyam and Tech Mahindra. The proposal is subject to various approvals
and the merger is likely to be consummated in the next 6 - 9 months.
Post-merger, the stock of MS will be de-listed from the bourses.
q We opine that, the price of MS will now be largely influenced by the projected performance of the merged entity and the valuations accorded to
the same. We also believe that, the price of the MS stock will move in
line with that of TM till the time the stock is de-listed. We do not have
active coverage on TM. Thus, we discontinue our coverage on MS.
The details
n The merger of MS into TM will be done through a share swap. The exchange
ratio has been fixed at 2 shares of Tech Mahindra for every 17 shares of
Mahindra Satyam.
n TM will issue 103.4mn new shares, thereby increasing its outstanding shares to
230.8mn and its equity capital to Rs.2.308bn. TM currently holds about 43%
stake in MS. By virtue of the merger, about 10.4% of equity capital of the combined entity will be held in the form of treasury stock. These shares will be utilized by the merged entity to further its growth plans.
n In the merged entity, the Mahindra Group will own 26.3%. British Telecom will
own 12.8%, 10.4% will be held as treasury stock and the balance by public
(34.4% by the public shareholders of Mahindra Satyam and 16.1% by the public
shareholders of Tech Mahindra).
n The consolidated entity will be a $2.4bn revenue entity with EBIDTA margins of
about 17%. It will employ about 75,000 people and will have more than 350
active clients.
Strategic benefits
n We believe that, the combined entity will have some strategic benefits. While
the entity will have a broader and larger service offering, the cross selling opportunities will provide greater scale up potential to the merged entity.
n We expect the merged entity to have operational synergies, which may result in
improvement of margins, other factors remaining constant.
n It will have a balanced mix of revenues from diverse sectors like Telecom, Manufacturing, Technology, Media & Entertainment, Banking Financial Services and
Insurance, Retail and Healthcare. To that extent, the service offerings will be
similar to several of the larger players.
n The company will have a diversified and well-balanced revenue base with
Americas contributing 42% of revenues, Europe 35% and Emerging Markets
23%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight22032012.pdf
MAHINDRA SATYAM LTD (MSL)
PRICE: RS.78 RECOMMENDATION: NA
TARGET PRICE: RS.NA FY13E P/E: 9X
Merger with Tech Mahindra approved; We terminate coverage on the stock
q The Boards of Directors of Mahindra Satyam (MS) and Tech Mahindra
(TM) have approved a proposal to merge Mahindra Satyam with Tech
Mahindra along with certain wholly owned subsidiaries of Mahindra
Satyam and Tech Mahindra. The proposal is subject to various approvals
and the merger is likely to be consummated in the next 6 - 9 months.
Post-merger, the stock of MS will be de-listed from the bourses.
q We opine that, the price of MS will now be largely influenced by the projected performance of the merged entity and the valuations accorded to
the same. We also believe that, the price of the MS stock will move in
line with that of TM till the time the stock is de-listed. We do not have
active coverage on TM. Thus, we discontinue our coverage on MS.
The details
n The merger of MS into TM will be done through a share swap. The exchange
ratio has been fixed at 2 shares of Tech Mahindra for every 17 shares of
Mahindra Satyam.
n TM will issue 103.4mn new shares, thereby increasing its outstanding shares to
230.8mn and its equity capital to Rs.2.308bn. TM currently holds about 43%
stake in MS. By virtue of the merger, about 10.4% of equity capital of the combined entity will be held in the form of treasury stock. These shares will be utilized by the merged entity to further its growth plans.
n In the merged entity, the Mahindra Group will own 26.3%. British Telecom will
own 12.8%, 10.4% will be held as treasury stock and the balance by public
(34.4% by the public shareholders of Mahindra Satyam and 16.1% by the public
shareholders of Tech Mahindra).
n The consolidated entity will be a $2.4bn revenue entity with EBIDTA margins of
about 17%. It will employ about 75,000 people and will have more than 350
active clients.
Strategic benefits
n We believe that, the combined entity will have some strategic benefits. While
the entity will have a broader and larger service offering, the cross selling opportunities will provide greater scale up potential to the merged entity.
n We expect the merged entity to have operational synergies, which may result in
improvement of margins, other factors remaining constant.
n It will have a balanced mix of revenues from diverse sectors like Telecom, Manufacturing, Technology, Media & Entertainment, Banking Financial Services and
Insurance, Retail and Healthcare. To that extent, the service offerings will be
similar to several of the larger players.
n The company will have a diversified and well-balanced revenue base with
Americas contributing 42% of revenues, Europe 35% and Emerging Markets
23%.
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