Satyam's New Beginning?

Shares of Satyam Computer Services Limited (SAY) have soared nearly 23% in early trading today following a buy-rated coverage initiation by a sell-side firm. Yesterday, the stock had risen 33.8% in an apparent response to the company's release of unaudited financials indicating profitability for its December quarter. The company also stated that it was profitable for both the months of January and February of 2009.

SAY recently announced the appointment of the four nominee directors of Venturbay Consultants Private Limited to the board of directors of the Company, effective as of May 27, 2009. Accordingly, the Board now comprises ten directors, including six directors appointed in January by the Central Government.

Earlier on May 5th, 2009, Satyam announced that Venturbay Consultants Private Limited, a subsidiary controlled by Tech Mahindra Limited, had been allotted 30,27,64,327 shares of the Company -- or thirty one percent (31%) of the share capital of the Company -- after giving effect to the issuance of the Initial Shares. As stated in the press release dated 20 April 2009, Venturbay had deposited into escrow, Rs. 17,56,03,30,966 (approximately US$ 351 million based on an exchange rate of Rs. 50 to US$1) being the subscription amount for the Initial Shares. Since the conditions precedent to the allotment of the Initial Shares have now been satisfied by the parties, the Funds have been released from the escrow account to the Company's account.

On May 13th, 2009, Satyam had announced that its Board of Directors has selected Venturbay Consultants Private Limited, a subsidiary controlled by Tech Mahindra Limited as the highest bidder to acquire a controlling stake in the Company.

The uncertainty over selection of leadership team at Satyam Computers Limited appears to have ended with the appointment of directors from the acquiring firm to its Board of Directors. We expect the new management team to steer the company in the right direction into the future.

While the financial position of the company is still being ascertained by the two audit firms (Deloitte and KPMG), we expect the company to generate business growth going forward. We have upgraded SAY to a HOLD from SELL, but are still suspending our estimates as long as its correct financial position remains unascertained and the historical financials remain unaudited.

Udayan Mukherjee contributed to this post.

Read the full analyst report on SAY