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Digest from Indian IT, Markets and Economy

December 19, 2008

There had been so many swift developing news, that I had been finding it difficult following them and analysing their implications. Quite a lot of conventional ‘news’ have flown by the ink and scribes yet, its a strange irony that India has a dearth of business opinion writers.For this week the following stories seem to have captured my attention and time fairly and squarely.

First let us start from a possibly good development:

  • HCL-AXON Deal: In the past, I have written quite a lot on the possible Infosys- Axon merger and was in fact quite bullish and enthusiastic about it. Back in last week of August and first week of September, I wrote two strong piece of articles rich in fundamental opinion on the advantages of Axon deal, namely Infosys, Axon and the Future and Infosys and Axon:Part 2. A lot of it stands ‘as-is’ for HCL too, but I guess, it was Infosys’s loss and HCL’s gain. Given the extremely lucrative liquidity of Infosys [~$1.8bn] it could have very well gone for the kill.And given the extremely high CURRENT RATIO of 3.3, it could have very well raised the cash, even if it needed. Yet it was HCL who came out victorious, perhaps because of a reason cited in Article#1. Lack of experience in foreign deals.
    HCL has got a good deal in hand which will help it to address profitably and strongly burgeoning, ERP industry. ERP industry is poised to post fantastic numbers and grow to a stunning $50billion market by 2011. Out of this, roughly around 42% market share is dominated by SAP. So, there you have it. As per the deal conference, HCL is going to chase book orders of Axon worth ~$1billion. Strategically, HCL-Axon deal is one to look out for esp. for the following reasons: A]The deal is done at a quite cheap rate due to the cross-currency movement and interest rate cuts.HCL is estimated to have saved around $135million.But there is some red in the sheets too, as there will be treasury losses of around $550million. Its understandable because, HCL has a very poor liquidity ratio [around 1.31], which might not augur well for leverage bitten investors. The present buoy of HCL shares should not be seen as an indicator of investor confidence. A rising and surging index pulls with it a lot of companies. B] Strategy wise, it gets access to around 4500 SAP consultants, a SAP delivery, precense in 24 countries and 60 offices.
  • Satyam-Maytas ‘NO’ Deal: Established VCs, value seekers and fundamental pickers put a lot of emphasis on an appropriate team management, leadership quality, ethics, camaredrie and other such intangible ‘assets’ which can’t be factored into a balance sheet. Depending on investing in a startup or investment in a blue chip, having a proper focus of the visions and abilities of senior management is an extremely important issue. Indian public sectors undoubtedly put up a bad image of corporate governance, but Indian IT and private sector is not far behind. Satyam has been in my bad books for quite some time. I have downgraded it approximately six months back, wholely and solely due to its irresponsible and ethic-less management.But this time, the corporate misgovernance has reached quite epic levels. In my previous post, “Satyam Softwares sued for $1billion” I mentioned how I was less than forgiving for Satyam in the entire patent-misfile and signature forgery case. The court case is yet to be settled in the Court of Texas, but with what it seems, Satyam is well poised to lose out there too. Yet yesterday, something singularly, blasphemical has happened and to my surprise, investors across the globe voraciously showed their anger by selling and shorting it. Two nights before, on 16th, Satyam announces the buying of 100% and 51% stake in Maytas and Maytas Infra, a subsidiary floated by the sons of Ramalinga Raju, the CEO of Satyam.The fig leaf announced by Raju was that given the gloom and doom in IT industry, it is diversifying into realty sector. “Whoa! talk about diversification. That too into a sector where none has any expertise in” . Mr. Raju has deluded himself into thinking that investors will buy his shyte of “two companies would be helped by Satyam’s ‘soft’ skills in infrastructure vertical” lock,stock and barrel.’Soft’ skills in realty and IT? Dreaming are you, Mr. Raju? This is a clear breach of trust an investor places on the management when he invests in his company. Pushing forward a deal for the benefit and prosperity of a selected few, had never been more lewd in this country of perenial injustice. And when you think that the deal was ‘unanimously’ passed by the board when the Raju Jrs only hold a paltry 8.1%, it makes you think, where are the independent board observers.I maintain my view: Short Satyam.

  • Amidst falling crude, ($38, at the time of writing) India’s Chidambaram seeks a growth of at least 7%, and trying hard to stay abreast as the second fastest growing economy in the world.
  • Meanwhile SEBI is mulling over the step of opening Nifty F&O at 8 AM to directly take the battle to SGX NIFTY. SGX Nifty has seen a huge surge in OI and volumes just before the P-Note was banned. In a bid to wrest away crucial liquidity and volumes, the exchange is thinking over to open the F&O exchange by 8am. If this is so, then it will be one of the important decisions towards having a more active market system.
4 Comments leave one →
  1. December 19, 2008 8:20 am

    one thing with Satyam as such is the history. they started out as land hoarders buying vineyards and converting them into plots, who later on jumped onto the IT bandwagon. They just thought they could do it the other way back

  2. December 19, 2008 1:49 pm

    Wow, isnt it interesting?
    Guess the apple doesnt fall far from its tree err. the grapes of vineyards in this case

  3. Jerry permalink
    December 19, 2008 2:13 pm

    Other was of looking at this case of Satyam is possibly the underlying intent of Ramalinga Raju & Other Directors, though it certainly didnot match with that of the expectations of the Investors… but this is the same company and the same set of Management which have been giving consistently good resutls for last so many years and quarters. Even if our opinion varies, we should always give ‘another chance’ if not ‘benefit of doubt’ to the company and management with such a high achieving past ! I will do that and see future with lots of positive hopes that this one-off incident will be forgotten and we look at good outcomes for the stakeholders of Satyam just the way it was in past or possibly better than the past !!

    • December 19, 2008 9:02 pm

      Jerry, interesting take, yet I can’t convince myself to see beyond this instance. Especially when, Raju and his cohorts have been unscrupulous [alright I am making judgements] in the case of patent mismanagement with UPAID systems. The case is pending yet I am not so optimistic about it. Even if, SAY emerges unscratched in this quagmire of legal issues I will still short SAY because, a bad leader will just bring the team out of a mess to put it into another.

      SAY undoubtedly has achieved a lot in the previous years, but our analysis will be faulty if we dont discount the ‘Great Credit Tide’ of the past few years. If you think, in terms of balance sheets, then INFY is much better poised in the same sector than SAY, similarly with HCL or WIPRO.
      Since I am a technical guy, hence dont take my fundamental views at FV. But might be, just might be, I will return to bullish speculations in SAY, if the guards are changed.

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