Open offer is likely to be for 19.54 crore shares of Satyam, while its present paid up equity stands at 67.40 crore shares. Of this, ADR holding is at 13.07 crore shares while L&T is holding 8.08 crore shares. Since shares held by L&T are not eligible to participate in the open offer, as it has a lock in of 6 months, there is expectation that even ADR holders may not see active participation. Due to this, Acceptance Ratio is likely to be 50%, viz. one share is likely to get accepted out of two shares tendered.
Coming on to the strategy for the Satyam shareholders, the performance of the company is bound to increase in FY 10 with Tech Mahindra taking charge and share price, which is now ruling at Rs. 48 will rise in due course of time. But, benefits of this rise would be seen more in the share price of Tech Mahindra, as, in its consolidated results, 51% of Satyam’s PAT would get added to its bottomline, while 100% of Satyam turnover in its topline. So it is advised to move to Tech Mahindra from Satyam, now, without participating in the open offer.
If we presume that for FY 10, Satyam is likely to have a topline of Rs.7,000 crores with PAT of Rs.700 crores, it would translate into an EPS of Rs.7. As Satyam will have outstanding number of shares at 97.67 crore, after preferential allotment. In this situation, if you expect share price of Satyam to rule at Rs.42, post open offer, this translates into PE multiple of 6 times.
Tech Mahindra had posted a topline of Rs.3,407 crores for nine months ending 31-12-08 while its PAT is placed at Rs.784 crores resulting in an EPS of Rs.64.FY 09 EPS is Likely to be close to Rs.75 and share price, ruling at Rs.372 is translating into a PE of close to 5 times.
Tech Mahindra would be requiring close to Rs.2,900 crores for acquiring 51% stake in Satyam. This is expected to get mobilized with internal accruals of Rs.900 crores and debt of Rs.2,000 crores. Tech Mahindra at present is a debt free company with present net worth of Rs.1,800 crores. The company has an annual cash generation of close to Rs.700 crores, after paying dividend on the equity shares. Hence an Additional interest burden of Rs.300 crores would get charged to the consolidated results of Tech Mahindra. Since it will be entitled for 51% PAT of Satyam, which is likely to be Rs.350 crores, the acquisition will be EPS accretive for Tech Mahindra. Once, this debt of Rs.2,000 crores would get paid in next two years, Consolidated PAT would sharply jump.
Conversely, if Satyam is not able to post an EPS of Rs.7, share price may not be able to hold Rs.40 levels. In that case, we may also not see any rise in share price of Tech Mahindra and it may remain Static at Rs.370 levels. So even in this case, it will be better for Satyam shareholders to move to Tech Mahindra right now without waiting to participate in the open Offer.
By SP Tulsian