FW: SCS IN: Satyam Computer Services: Govt. appoints new Board - UNDER REVIEW - India - 7pp

Reason for Report: Company Update
New board a positive but a long haul ahead
The Central Government has appointed a new Board of Directors for Satyam
superseding the previous Board. The new appointees include Deepak S.
Parekh, Chairman of HDFC, Mr. Kiran Karnik, former President of NASSCOM
and Mr. C. Achuthan, Director at the National Stock Exchange & former
member of SEBI. While we believe this is a first step to help stabilize
the business, securing new business and improving PE it will ultimately
depend on the new executive management appointed and assessment of
liabilities post investigation. We are placing the stock Under Review
until the financial numbers have been restated. Investors should not
rely on our past recommendations, price objectives or earnings
recommendations.

Board's priorities: Financial stability, new leadership
The Board outlined the immediate steps as a) finalizing the appointment
of an independent accounting firm within next 2 days, to restate
accounts for past years b) ascertaining true assets/liabilities and
managing working capital c) to appoint a new CEO & CFO, likely
external.

Government/Board to boost liquidity/business continuity
Quoting the Secretary of the Department of Economic Affairs, CNBC
reported that the government. would consider temporary direct/indirect
support as necessary to support Satyam. The government is also likely to
appoint additional Board members soon. PwC's fate would be decided only
post a shareholder meeting, with the possibility of two auditors in the
interim.

Some stability, but new business likely a challenge
Swift action by the government, industry peers exercising caution on
poaching clients & employees and challenges of transition, could help
Satyam retain annuity revenues, likely about 50% of revenues. However,
we believe clients will be cautious of granting new projects, as many
have multiple vendors (e.g. Satyam shares clients such as GE and Citi
with TCS. HCL Tech recently closed the Axon deal in SAP) and many
clients are also undergoing consolidation.

Mitali Ghosh Pratish Krishnan Prasad Deshmukh

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