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India outsourcer Satyam still recovering after turmoil

John Ribeiro | Aug. 4, 2009
Analysts say some of the company's top clients have canceled contracts or are exploring other options

In June, the company announced a program to cut staff costs by allowing up to 10,000 of them to take time off from work on reduced pay.

While advising customers to be vigilant, Forrester said it believes that the further deterioration of Satyam's value and brand will soon stop, and the company will restore stability and possibly grow in the next six months.

CLSA holds that the outlook for Satyam remains difficult, as key senior managers at the company have quit, and critical customers are exiting. Trying to stabilize operations in a still challenging economic environment is tougher than envisaged, it said.

More worrying is Satyam's likely inability to attract new clients or more work from existing clients because of potential concerns about Satyam's stability, CLSA said. It also contested Satyam's claim that it hasn't lost clients since April.

Satyam's share price on Indian stock exchanges has been rising after the company announced unaudited results in June for the fourth quarter of last year and for January and February this year. An increase in the company's profits in February over January sparked investor interest.

As a result, Tech Mahindra's bid to acquire from shareholders a 20 per cent stake in Satyam at 58 rupees (US$1.20) a share fell through, as the market price had meanwhile risen to over 70 rupees.

Tech Mahindra, which earlier acquired 31 percent of Satyam's equity through a preferential allotment of fresh equity, asked the company to issue it more preferential equity for the same investment, which took its holding to 43 percent, rather than the planned 51 per cent.

However, Satyam's stock price increase may mean that it is now overvalued, CLSA said.

 

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