Citigroup – Wait for clarity
Lots of unknowns — Satyam’s financial details are not known at this point in time. Without knowing the same, it is difficult to assess the impact of the deal on TechM. The restatement of accounts is going to take a few more months.
What does it mean for TechM? — (1) TechM will become a scale player (total revenues of ~$2.3b) with diversified revenue base. (2) If the acquisition is fully debt funded, it could take TechM’s net debt to ~Rs. 22b. (3) Satyam is facing about a dozen class action lawsuits in the US plus the ongoing legal battle with Upaid – difficult to value the liabilities though.
Wait for clarity — We await details on Satyam’s financials. Lots of unknowns, client confidence issues, execution challenges and liabilities (Upaid and class action suits) increase the risk profile of Tech Mahindra, as a stock.
Deutsche Bank – Long-term positive
Acquisition of stake in Satyam: Diversifying Tech Mahindra’s risks: We believe Tech Mahindra's acquisition of a controlling stake in Satyam Computers will enable it to diversify its risks. Although Tech Mahindra has leveraged its B/S and become perhaps the most geared IT services company in the world, we believe Satyam's diversified service and client base will allow it to diversify risks away from the beleaguered telecom vertical and the volatile revenues from BT, its top client. We believe the share price already reflects concerns on the leveraged B/S and revenue volatility from BT; we reiterate Buy.
Poised to break into the big league of Indian IT service providers
We believe Tech Mahindra’s impending acquisition of a controlling stake in Satyam is a step in the right direction. The biggest positive for Tech Mahindra is diversification of its revenues in terms of clients, geography and service lines. A heavily leveraged balance sheet (net D/E ratio of 1:1) means Tech Mahindra may need to arrange for an equity partner in the near future. We expect the Satyam deal would be EPS accretive from its first year; however, this assumption could be affected by the outcome of the various lawsuits facing Satyam.
BofA - Merill Lynch: Positive, wait for clarity
We believe the Satyam acquisition would help diversify its exposure beyond telecom services providers and reduce concentration of top client (BT) from current 60% to ~25% post acquisition. TML currently address only the telecom services domain and is one of the largest vendors for BT globally. TML would also emerge as the fourth largest listed offshore service provider from India. Expect stock to re rate on revenue diversification and scale.
Given no data on Satyam revenues and possible liability from class action suits, we have done simplistic scenario analysis based on Satyam employees and possible civil suit liabilities, which indicates flattish to -7% decline in EPS impact for TML post consolidation. Key risks stem from quantum of liability from US civil suits and integration risks
Scenario analysis given below
Lots of unknowns — Satyam’s financial details are not known at this point in time. Without knowing the same, it is difficult to assess the impact of the deal on TechM. The restatement of accounts is going to take a few more months.
What does it mean for TechM? — (1) TechM will become a scale player (total revenues of ~$2.3b) with diversified revenue base. (2) If the acquisition is fully debt funded, it could take TechM’s net debt to ~Rs. 22b. (3) Satyam is facing about a dozen class action lawsuits in the US plus the ongoing legal battle with Upaid – difficult to value the liabilities though.
Wait for clarity — We await details on Satyam’s financials. Lots of unknowns, client confidence issues, execution challenges and liabilities (Upaid and class action suits) increase the risk profile of Tech Mahindra, as a stock.
Deutsche Bank – Long-term positive
Acquisition of stake in Satyam: Diversifying Tech Mahindra’s risks: We believe Tech Mahindra's acquisition of a controlling stake in Satyam Computers will enable it to diversify its risks. Although Tech Mahindra has leveraged its B/S and become perhaps the most geared IT services company in the world, we believe Satyam's diversified service and client base will allow it to diversify risks away from the beleaguered telecom vertical and the volatile revenues from BT, its top client. We believe the share price already reflects concerns on the leveraged B/S and revenue volatility from BT; we reiterate Buy.
Poised to break into the big league of Indian IT service providers
We believe Tech Mahindra’s impending acquisition of a controlling stake in Satyam is a step in the right direction. The biggest positive for Tech Mahindra is diversification of its revenues in terms of clients, geography and service lines. A heavily leveraged balance sheet (net D/E ratio of 1:1) means Tech Mahindra may need to arrange for an equity partner in the near future. We expect the Satyam deal would be EPS accretive from its first year; however, this assumption could be affected by the outcome of the various lawsuits facing Satyam.
BofA - Merill Lynch: Positive, wait for clarity
We believe the Satyam acquisition would help diversify its exposure beyond telecom services providers and reduce concentration of top client (BT) from current 60% to ~25% post acquisition. TML currently address only the telecom services domain and is one of the largest vendors for BT globally. TML would also emerge as the fourth largest listed offshore service provider from India. Expect stock to re rate on revenue diversification and scale.
Given no data on Satyam revenues and possible liability from class action suits, we have done simplistic scenario analysis based on Satyam employees and possible civil suit liabilities, which indicates flattish to -7% decline in EPS impact for TML post consolidation. Key risks stem from quantum of liability from US civil suits and integration risks
Scenario analysis given below
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