Valuing Satyam

An innocuous SMS prompted me to this post. The SMS pointed to this article & I could not resist this post. Thank you Ravi for the SMS
Well. How do you value a troubled company in the midst of a major scam perpetuated by the founders themselves. Adding to the complication is the family members including sons , brother and to top it all the Andra Pradesh politico.
Well Again
As discussed in the article the true assets of the company is its IP viz its highly skilled staff and its ongoing engagement with its customers In other words the company is per se in great shape. I would hurry to add that GoI which has a major say in the matter rather than the state govt. has been handling the issue with great elan and very importantly no rhetoric not has politicised the issue. This will be the real clincher for the discerning investor. If the GoI is keen on getting rid of the case quickly with minimum or no caveats - well - you cant ask for more.

Now comes the crutial question - How do you value Satyam ?

Simple. On pure free cash flow basis.

If the new owners quickly bring back morale to Satyam, act decisively to consolildate the customer base and build on it and prevent any rot in the core then you have a winner for a pittance. Just the internal cash generation in the next 36 months can fully clean up Satyam's balance sheet and pay off the aquisition cost. That is One Hundred Percent RoI in 36 months.
Boy - what more can you ask for !!!!

But that is not all.

May be my ignorance or over obession with the litigation in US. I add high weightage to this. Can the bidder seek GoI immunity againt this ? Will GoI agree ? 52000 employees and other considerations in a election year.

What I could glean from the media reports is

• Satyam was is and will be a profit making company.
• Raju's first statement that he overstated revenues is false.
• The founders have siphoned out funds to Maytas which legitimately belongs to Satyam
• If GoI continues its laisse-faire approach these thousand of crores of rupees which legitimately belongs to Satyam can be brought back into Satyam though this will be need 4 to 5 years of hard work political manoeuvring and protracted litigation
• These inflows can more than offset the potential mass tort liabilities in US

In the right hands Satyam can be restored to its past glory and financial stability in 3 to 4 years by a competent new management the rider being the netas and babus keeping away.
And the present share price and the SEBI , CLB waivers are a bonanza. ( see my earlier post - Satyam for a song. )
The current boards priority should be to hand over Satyam to a new competent suitor who will stabilize Satyam and make a packet for himself.

Win - Win.
Naik & Anand are aware of this.