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Thursday, January 8, 2009

Satyam Computers Stock - Assessment

Assessment on Stayam stock by Stock analyst Shankar Sharma.

Q: What is your assessment now in the evening, of what kind of collateral damage this might have to the market at large and to Satyam’s investors?
Shankar Sharma: To Satyam’s investors, I think the damage is very clear and apparent. I don’t think the damage in the stock has been done completely because just looking at the way Satyam’s business model is, and that is very important to focus on. Let’s clear away the Ramalinga Raju confession. Just look at the financials.

There is no cash on their balance sheet. Their profitability is abysmal at the operating level, which means that they are making losses at the net level, which means––by our estimates––that the company has no cash even to meet the next payroll.

So, it is not just a problem of governance and stuff. It comes down to a real crunch situation that they will be writing cheques that they cannot honour physically.

How does this situation get solved? I have no idea. I think this stock will go to zero levels, probably by the next trading session because there is still 100% to be lost from even these prices.

No company in its right senses will want to go and take a look at its books, or try and look at it as an acquisition candidate because it is a loss making company. So, why on earth would you want to take 50,000 employees––I don’t even know whether that is a correct number––whose contribution is to generate a loss quarter after quarter.

So, I doubt if there is any acquisition going to materialise. So, what is the end game here? It is a services company; it has no plant or machinery of any reasonable value save for the real estate value. So, why would you want to buyout a Satyam equivalent company? When it is a loss making, it has no assets worth the name, the clients will walk, the employees will go. I think this is dead in the water.
Source: Moneycontrol

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