Is the glass half-empty or half-full?
As Mahindra Satyam, the reincarnation of fraud-mauled Satyam Computer Services Ltd, unveiled colossal losses for the two scarred years — 2008-09 and 2009-10 — on Wednesday, the signals seemed confusing for many, with good reason.
This is because the past weighs heavy on the ground, but it is behind, while the future that could be rosy is yet to arrive.
This much can be said:The Mahindra group’s attempts to enter the big league of Indian IT with his bold gambit to grab the bleeding company hit by India Inc’s biggest accounting fraud has succeeded, because Mahindra Satyam’s merger with flagship Tech Mahindra, a relatively smaller player in the league led by TCS, Infosys and Wipro, is now a question of time.
The size and the synergy the two will bring about seem unmistakeable to an IT-watcher.
As Mahindra & Mahindra vice-chairman Anand Mahindra said: “These are accounts of the past. If you are going in to revive the company, you have to worry about the future.”
In addition to financial services, Satyam has key capabilities in automotives and aerospace, and the Mahindra stable led by the makers of Scorpio have lots of hands-on experience in manufacturing and defence. Tech Mahindra is itself a strong player in telecom software.
A capability audit suggests that grabbing future opportunities in the emerging world of digital convergence, green automobiles and defence goods is strong for the combination. IT is now pervasive, and gives a key edge in all major industries.
Mahindra Satyam can expect a demand pipeline coming out of such a scenario.
Satyam was hit with a double-whammy of a recession in the US and the fraud last year. Clients have dwindled to 350 from 500 and headcount is down to 27,000 from 45,000. In a people-oriented industry that values skilled professionals and steady business, that is bad news.
Clearly, a potential large-cap company looks like an emerging mid-cap now, thanks to the shenanigans of the disgraced and jailed founder, B. Ramalinga Raju.
But the upside is that the total loss of R8,177 crore in 2008-09 and the R7,855-crore figure mentioned as connected with irregularities are clear statistics. In the restatement of accounts, that is like isolating the virus. The cure has begun. The figures separate the criminal mismanagement from the day-to-day concerns of the company. The morale should go up now.
In terms of profitability, the 8.3 per cent EBITDA (earnings before profit, interest, depreciation and amortization) for Mahindra Satyam is well below that of the industry leaders and increasing that should be the focus issue for the company.
If the US economic recovery takes ground, it would be opportunity for Mahindra Satyam to bounce back in scale and scope.
In a quiet moment, there is also a case for calculations to see how much the Mahindras could gain as strategic investors. The last laugh will be when all shareholders measure the gains they had in catching a falling knife — which is what Satyam was.