FW: SATYAM (details) : After the moral outrage, what price could be interesting? (Rs25-40)

Hi,

*Satyam's Founder and Chairman Ramalinga Raju has quit.** In a letter to the
Board and exchanges, he has admitted that:*

- *Satyam over-stated cash assets*: Rs50.4bn out of Rs53.6bn cash assets
are "inflated or non-existent"
- *Satyam over-stated revenues:* In Sep quarter, revenues were reported
as Rs27bn whereas revenues were actually Rs21.12bn
- *Satyam over-stated operating profits:* Real operating profits in Sep08
quarter were 3% of revenues, which were stated as 24% of revenues.
- Satyam also has under-stated liabilities - more details in the attached
release sent to the exchanges.

*Satyam is now India's Enron. Recent chatter on value emerging in the Satyam
stock based on cash per share has been rendered irrelevant. The independence
of the Board was already in question, now the auditors' (PwC) complicity in
what seems to be a multi-year mis-statement of financials will also be
explored. *

*An embarrassing and shocking episode for Indian corporate governance
continues to unravel, surprising all at every step. Legal measures may
follow, and introspection too, by regulators, corporates, auditors, and of
course, by analysts like us. *The 10th January Board meeting now becomes
irrelevant. When there is no cash, how can there be a buy back? And where
did the cash go? Only an investigation can tell.

So much for the "moral outrage", which is the easy way out. *Is there any
way Satyam can be valued now? What about 50,000+ employees (is the count of
employees real?), and hundreds of customers (the large ones are real for
sure); and what about UPaid which had filed a forgery litigation against
Satyam? *

*Book value becomes meaningless, with cash out and asset/debtors unknown or
uncertain. A different approach could be that the business, or SOME PART OF
THE BUSINESS, is real*

- M Cap per employee for Indian IT majors = $100-120k
- Assume a 70% discount for Satyam
- Assume Satyam DOES NOT have 50k+ employees but only 30k in reality
- *Satyam could be valued at = $120k x 0.3 x 30000 = $900m*
- *Remove still unknown (yet to be disclosed) liabilities of $300m
(assumed). Value becomes $600m or about Rs40 per share*

*Based on the declared real EPS for Sep quarter, and a 8x multiple, price
could be Rs25 per share.*

Regards

*Bhavtosh Vajpayee, CFA | Nimish Joshi*
CLSA India

Credits: wellwishers of Satyam stakeholders,CLSA
Visit www.clsa.com