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Analysts see a tough road ahead for Tech Mahindra

This article was posted on Apr 14, 2009 and is filed under Stock Views

MUMBAI: Tech Mahindra’s acquisition of Satyam Computer Services may have come as a relief to the market, but analysts see a tumultuous journey ahead for the former. As regards the upcoming open offer, analysts aren’t sure of the kind of response the offer would evoke.

They also appear to be quite cautious about the impact of the acquisition on the prospects of Satyam, given the magnitude of the crisis and a lack of clarity on strategy the winner would adopt post-acquisition.

“Satyam Computer has a wide investor base and there could be a decent response from shareholders, particularly those who invested only recently with a short-term view,” said Prabhudas Lilladher head of research Apurva Shah. He feels Tech Mahindra would be keen on completing the offer successfully, as it would help the new promoters consolidate their holdings and also put them in a better position if they eventually plan merger of the two companies.

Most analysts feel it is too early to talk about the impact of the acquisition on prospects of Satyam, as the Tech Mahindra management would have a very challenging task of cleaning up the balance sheet of the scam-tainted company and rebuilding confidence among shareholders and the clients.

“Investors would wait for more facts to emerge from the Satyam story and the detailed gameplan of Tech Mahindra. The latter would try to benefit from the tainted company’s assets, particularly infrastructure, and use the client base for growing its business,” said KR Choksey Shares and Securities chairman Kisan Choksey.

Satyam’s existing client base would be a big advantage for Tech Mahindra, feel analysts. “At present, Tech Mahindra is totally focused on its UK-based client BT. With Satyam’s acquisition, it would have diversified client base and would enjoy the benefit of dispersion of client concentration,” said Religare Securities president (equity) Amitabh Chakraborty.

There seems to be a consensus on what L&T, which offered a bid of Rs 45.90 per share, would do with its holding of 12% in Satyam. Most analysts feel it makes sense for the engineering and construction conglomerate to hold on to its stake and wait for the valuation to rise to decent levels, before taking any call on the investment.

source: Economicitmes

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