A
PROJECT REPORT ON STOCK OPTION & VALUATION OF SATYAM COMPUTER & INFOSYS SUBMMITED BY Dhirajlal P. Nakum Reg. No. – 520849649 Maunik G. Shah Reg. No. –520841222 MBA 3 rd Finance
Roll No:
GUIDED BY: SHWETA SHARMA
TO
SUBMITTED TO BARODA INSTITUTE OF MANAGEMENT STUDIES MANJALPUR, BARODA
Preface The practical training is given in M.B.A is to develop the Students ability and knowledge about the finance concept and Environment. The theatrical knowledge and conceptual ideas are the back ground of the development and the practical training. I have to say that internship training is a great opportunity which I had taken to do something in practically. We done the internship training in money multiplier (Vadodara Stock Exchange) located at Baroda. For this internship we can know that the primary of stock market Practical knowledge is very inevitable for manager of tomorrow. It opens the corporate work and provides technical knowledge. As a student of this institute I am required to prepare a project report on my internship training. It consists of my internship training in the money multiplier .I proudly present my practical knowledge through this report. I am pleased to submit the finding of the project report for the purpose of evaluation by examiner. I also express that this internship training was important for me because by this internship training I got the practical study of the management.
Acknowledgement We are thankful to our dean Mr. Sunil Dalwadi for providing us opportunity to prepare this report. We are really thankful to our professor in charge Mrs. Shweta Sharma without guidance this report would be a dream. We are also thankful to Mr. Rahul sir for helping in analysis of this report. We also want to thank and express our gratitude towards all the people who have helped us in this report. The kindness and co-operation of all our friends are there who have directly or indirectly contributed to this report.
Dhiraj P. Nakum
Maunik G. Shah
OMPANY CERTIFICATE REGARDING COMPLETION OF TRAININ
This is to certify that the summer project titled “Stock option & Valuation of satyam computer Ltd. And Infosys limited� is a bonafide and a sincere work of Mr. Dhiraj P. Nakum and Maunik G. Shah is original and has been made under my supervision in partial fulfillment of the award of MBA programme in for the period from 26th nov-09, to 2nd jan-10. I am pleased to say that his performance during this period was Excellent.
Dhrumesh G. Shah Money Multiplier
(Vadodara Stock Exchange)
Baroda Institute of Management Studies PROJECT COMPLETION CERTIFICATE This is to certify that Project Report entitled:
“Stock option and Valuation of Satyam computer Ltd. & Infosys Limited� Is submitted in partial fulfillment of the requirements for the degree of Masters of Business Administration (MBA) By
: Dhiraj P. Nakum and Maunik G. Shah
Registration no. : _520849649 , 520841222 Semester
: MBA 3rd Sem
Specialization: Finance
The degree awarded is approved by UGC, Ministry of HRD, DEC and AIU. It is to further certify that he/she has worked under my supervision and Guidance and submitted for
that no
part of this
report has
been
the Award of any other degree, Diploma, Fellowship or other similar titles or prizes and that the work has
not been published in
any Journal or Magazine.
Certified by: (Guide’s Name & Qualification) Ms. Shweta Sharma Umesh Pandya
Mr.
Faculty-Finance dean
Vice-
MBA (Finance), UGC-NET (Mgt.) NCFM-Depository Operations, AMFI
Index
NO PARTICULARS . 1. COMPANY PROFILE
Page No.
2.
10
3.
SPECIALIZATION SPECIFIC DEPARTMENT OVERVIEW RESEARCH METHODOLOGY
4.
STOCK OPTION
5.
STOCK VALUATION
6.
SATYAM COMPUTER
7.
SATYAM SCAM
8.
EFFECT OF SATYAM SCAM ON MARKET
17 27 36 54 65
9. 10.
WHICH COMPANY’S ARE IN RACE TO TAKOVER SATYAM COMPUTER SATYAM TAKOVER
11.
CHARTS AND TABLES OF SATYAM COMPUTER
12.
INFOSYS LIMITED
13.
FUTURE EXPANTION OF INFOSYS LIMITED
14.
CHARTS AND TABLES OF INFOSYS LIMITED
15.
20.
ANALYSIS OF STOCK OPTION ON SATYAM COMPUTER AND INFOSYS LIMITED STOCK VALUATION OF SATYAM COMPUTER AND INFOSYS LIMITED CONCLUTION
21.
PRACTICES EXPERIENCE FACED
22.
FINAL CONCLUTION
23.
LIMITATION
24.
BIBLIOGRAPHY
19.
7
14
71 78 83 86 90 97 99 101 106 107 111 115 125
COMPANY PROFILE
ď ś HISTORY OF THE COMPANY
The history of the money multiplier ( Vadodara Stock Exchange) is very interesting. It is one of the famous investments company in vadodara stock exchange. Geographically this company is located in Vadodara. This company is do online trading in BSE and NSE. This company has been set up in the year 2005.the company was local management in 2005 by Dhrumesh G. Shah. The money multiplier pvt. Ltd. In the Vadodara Stock Exchange. This company is also continuosly improve services and excellence in the online trading.
Profile of the company Company • Money multiplier ( Vadodara Stock Exchange )
Category • Investments
Address 503,fortune tower Sayagigunj, Vadodara – 39005 Land mark • Near M.S.University
Phone 0265-6544764 0265-2226083 Mobile 9879517139 Contact person (owner) Dhrumesh G. shah
Services • Mutual Fund Investment • Stock and Shares • Tax Savings Investment • NSC/PPF Investment • Fixed Deposit
Related Services • Insurances • Loans • Accounts Subsidiary Companies • Charted Financial Services pvt. Ltd. • Fullerton India • Mascot Finance Services • S. G. Kini & Co. • Smart Money Inc. Search By Keyword • Stock Market Investment • Tax Savings Plans • BSE Share Brokers • Buying Shares • Chit Fund Business • Financial Sector
SPECIALIZATION SPECIFIC DEPARTMENT OVERVIEW
• • • • • • • • • •
The Finance Department is responsible for providing the following services: Implementing and monitoring financial controls to safeguard the City’s monetary assets. Making payments to employees and vendors in a timely and accurate manner. Safeguarding and dispensing financials information to appropriate parties. Forecasting and auditing revenue. Preparing the budget. Safeguarding and tracking the City’s infrastructure and capital assets. Purchasing, contract writing and bidding services for each department. Implementation of the City’s Geographic Information System’s programs Reservations of the City’s building and park facilities and Dumpster program Control over the shared fleet vehicles The Payroll section is responsible for ensuring that all employees are correctly paid, payroll information is accurate, and that federal and state income tax withholdings are properly accounted for and paid. Retirement payments and special services such as flex benefits, deferred compensation and court ordered withholdings are also administered by Payroll. The Accounting/Treasury section monitors and estimates revenues on a monthly basis to ensure that the City meets its projected revenues for the current year. The Accounting/Treasury section also resolves general ledger issues and coordinates with other departments to ensure that expenditures and revenues are properly accounted and entered into the financial system. The Financial Reporting section is responsible for providing reports to each City department and to outside parties to ensure legal compliance with federal and state requirements. The Financial Reporting section also
reconciles the accounts of the City and works with the City Treasurer to ensure that the revenue of the City is properly receipted. The Revenue Auditing and Forecasting section works with each department that has revenue centers to project current year’s revenues and estimate future years’ revenues. This section audits revenue from various sources to ensure that state agencies are providing revenue due the City. The Purchasing section ensures that the City’s assets are protected, acquired and disposed of according to state and local requirements. Some of the main functions of this section are the consolidation of supply acquisition to maximize cost savings and the drafting of contracts and requests for proposals to ensure that the City is protected and aggressive in the construction and maintenance of infrastructure and services. The Financial Administration section ensures that financial controls, policies and procedures of the City are up-to-date and in compliance with federal, state and local guidelines. This section is responsible for the administration of sister agencies to the City such as the Redevelopment Agency of Draper City and the Draper City Municipal Building Authority. All special service districts are reported by this section as well as budget and audit reports to other governmental agencies. The Receptionist section ensures that the public is greeted and assisted in a professional courteous manner. This section is responsible for the reservation and operation of the City’s Dumpster program, the use of the shared fleet vehicles and the building and park reservations. All visitors and users of government services interact with the receptionist section. Each department can utilize the receptionist section for coordination of special requests and assistance with extraordinary events.
PROJECT TITLE RELATED CONTENT • Stock Market Index ➢ Sensex ➢ Nifty • RESEARCH METHODOLOGY ➢ EXPLORATORY OBSERVATORY PROJECT ➢ UNIVERSE UNDER STUDY ➢ SAMPLE SIZE FOR COLLECTION ➢ PREPARATION OF QUESTIONNAIRE ➢ METHODOLOGY FOR DATA COLLECTION
• STOCK OPTION ➢ DEFINATION ➢ TYPES
• STOCK VALUATION ➢ DEFINATION ➢ TYPES
•
SATYAM COMPUTER PVT. LTD. ➢ HISTORY ➢ PROFILE ➢ SATYAM SCAM ➢ EFFACT OF SATYAM SCAM ON MARKET ➢ WHICH COMPANY’S ARE IN RACE TO TAKOVER SATYAM COMPUTER PVT. LTD. ➢ SATYAM TAKOVER ➢ CHARTS AND TABLE
• INFOSYS LIMITED ➢ HISTORY ➢ PROFILE ➢ CHARTS AND TABLES
• ANALYSIS OF STOCK OPTION ➢ SATYAM COMPUTER PVT. LTD ➢ INFOSYS LIMITED
• STOCK VALUATION ➢ SATYAM COMPUTER PVT.LTD. ➢ INFOSYS LIMITED
• CONCLUTION
• PRACTICAL EXPERIENCE FACED • FINAL CONCLUTION • LIMITATION • FUTURE EXPANTION • BIBLIOGRAPHY • QUESTIONNAIRE • NO OBJECTION CERTIFICATE
Stock market index An index is statically indicator providing a representation of the value of the securities which constitute it. Indexes often serve as barometers for a given market or industry and benchmarks against which financial or economic performance is measured. A stock index reflects the price movement of shares while a bond index captures the manner in which bond prices go up and down. For more than hundred years, people have tracked the market’s daily ups and down using various indices of overall market performance. There are currently thousands of indices calculated by various information providers.
• SENSEX Sensex is the stock market index for BSE. It was first compiled in 1986. It is made of 30 stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 197879 and the base value is 100.
• NIFTY Nifty is the stock market index for NSE. S&P CNX Nifty is a 50 stock index accounting for 23 sectors of the economy. The base period selected for Nifty is the close of prices on November 3, 1995, which marked the completion of one year of operations of NSE’s capital segment. The base Value of Index was set at 1000.
Research methodology
Rational of the research study The study was undertaken to identify, understand, interpret and report people’s attitude and daily trading.
Objective of research study a. To identify trading habits of respondents b. To understand their difficulties and basic facilities that is required in stock exchange which increase their curiosity. c. To understand their interest area in stock market
Scope of study This study was aimed to explore the habit of trading, their difficulty and their interest in the stock market of trading.
Research Design
Source of information Primary data : primary data would be collected from 6 different areas of Baroda city. Secondary information is collected from internet and news paper articles
Sampling method Quota sampling method was used to collect the data. We were asked to contact 1000 respondent and conduct interview with help of questionnaire.
Sampling media The primary data will be collected with the help of personal interview from the selected respondent.
Sampling size We have tried to survey total 1000 respondents from different areas of Baroda city.
Significance of the study Basically it will help the student in getting the research based knowledge. The study is very helpful to know the habits and interests of trading and their trading of interest in stock market. So it may be helpful to different parties who are directly or indirectly connected with such business. It can be beneficial to stock exchange in understanding clients need for trading facilities.
Definition of the stock option An employee stock option is the right granted by an employer to buy, or "exercise" a given number of shares of company stock at a predetermined price, which is known as the "grant," "share," or "exercise" price. The option is open over a set period of time, known as the "exercise period." The "strike" price is usually the market value of the shares at the time the option is offered, but this is not always true. The profit for employees is realized if they can sell the stock for more than they paid during the "exercise" period. An option in which the underlie is the common stock of a corporation, giving the holder the right to buy or sell its stock, at a specified price, by a specific date. Also called equity option. The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time. An option, as a call or put, to buy or sell stock at a specified price within a specified time, specif., and such an option offered to an employee by a company to buy its stock for less than the market price so called option contract.
Types of the stock option Non-qualified Stock Options • For broad-based plans, non-qualified stock options are usually the choice available. With non-qualified stock options, the employee owes no tax when the option is granted. Tax liabilities only occur on the difference, or "spread," between the grant price and the stock's market value when the shares are purchased, or "exercised." If the stock is held for less than a year, the spread is taxed as ordinary income. If it is held for a year or longer, the spread is taxed at the rate of capital gains, which is generally lower. Companies deduct the spread as a compensation expense.
Qualified Stock Options • Qualified stock options are also known as incentive stock options. With qualified, or incentive, stock options, no taxes are charged during the "grant" or the "exercise" period. Taxes are deferred until the stock is sold, and taxes are imposed at the rate for capital gains, provided the stock is sold at least two years after the "grant" period and at least one year after the option is "exercised." If the stock is sold before the required period for tax deferment, the sale is called a "disqualifying disposition" and taxes are imposed at the higher individual tax rate. Qualified stock options are usually reserved for top-level employees because companies receive no tax benefits from them.
Exercising the Option • There are three ways of "exercising" a stock option. The most common way is to pay cash for the stocks. A second means is called a "stock swap" which allows employees to trade stocks in the company they may already own to pay for the "exercise" of the option. The third option is called a "cashless exercise" where employees borrow the money to buy the stock from a stockbroker and simultaneously sell enough other stock they own to cover the price of the "exercise" plus any transaction fees.
Considerations •
When the market is volatile, a company may change the price of the option to reflect the present state of the market. This is done by canceling
the original option and offering a new option to employees, usually at a lower price. Outside investors are not eligible for this, however. Nonqualified options are transferable to children and even to charities. Qualified stock options may not be transferred. Additionally, no more than $100,000 in qualified stock options may be "exercised" in a single year. • A stock option is a contract that gives the buyer the right to buy or sell stock at a particular price on or before a certain expiration date, however there is no obligation to do so. If you let the expiration date pass, the option becomes worthless, but you're only out the premium paid. Here is a look at the different types of stock options and how they work.
Call Option •
a call option gives the buyer the option to purchase an agreed quantity of a particular stock from the seller on or before an expiration date at a certain price, known as the strike price. The seller has to sell the stock if the buyer wants it by the expiration date. The buyer pays a fee (called a premium).
•
The buyer benefits when the stock is moving up, bringing its value above the strike price. The option is then said to be 'In the Money.' On or before the expiration date, the buyer acquires the stock at the strike price and makes a profit by selling it. If the stock ends up lower than the strike price, the buyer is not under the obligation to buy.
•
Call options are profitable when the market is booming.
Put Option •
a put option is a contract that allows you to sell stock at a particular price (strike price) on or before an expiration date. The seller pays a premium to buy a put option.
•
•
If the value of the stock falls and is lower than the strike price, you can buy the stock at the market price and make a profit because you can sell at the higher strike price. If the value of the stock rises, you are not under the obligation to sell the stock at the expiration date, and what you lose is the premium you have paid.
•
Put options are profitable for the seller when the market is in decline.
•
If you are selling a put option to somebody who holds stock, you are known as a "writer." The writer is someone who is bullish on the market and collects a premium. If the stock's value increases, the writer gains as the seller of the stock will not be inclined to sell it at the strike price, when the market value is higher. The premium is the writer's maximum gain, and having the option expire is the best case scenario.
Leaps
• LEAPS or Long-Term Equity Anticipation Securities are options that expire much further in the future and typically have more than one year left before the expiration date. • The premiums for LEAPS are higher than for standard put or call options for the same stock. That's because the long duration before the expiration date gives the stock more time to make a substantial move and for the investor to make a healthy profit. LEAPS allow the holder to keep track of the long-term price movement without the need to invest the larger amount of capital that would be required to own the stock outright. LEAPS can be exercised at any time before expiration. Employee Stock Options •
an employee stock option is a call option on a company's stock, issued to employees as a form of non-cash compensation. You get the right to buy a certain number of shares of your employer's stock at a specified price over a certain period of time. The company is under the obligation to sell the agreed stock to the employee at the strike price by the expiration date. This is an incentive to employees to work toward boosting the company's stock price above the strike price.
•
Typically restrictions are imposed such as vesting and limited transferability. Vesting rules specify how long employees should be part of the company before the benefits become irrevocable.
•
Employee stock options should not be confused with employee stock ownership plans or ESOPs. Even seasoned startup personnel frequently misunderstand the ins and outs of their options. I initially thought I could cram a full overview into one post, but quickly realized that it would take several posts to get into the detail that I wanted. So, this is the first post in the Startup Stock Options series. These posts are intended for employees and other people that own startup stock options. Brad Fled has a great series on Term Sheets which cover stock options (and plenty of other issues) that are more geared for company founders. Over the course of this series, I’ll touch on (in no particular order): How options are granted Vesting schedules Liquidation events Buyback rights Option prices & how they are set Early Exercise Multiple grants Reprising & Dilution Alternative Minimum Tax Impacts
•
• • • • • • • • • •
The two types of options: •
The first aspect I’ll discuss is the two option types: Incentive Stock Options (ISOs, sometimes called Statutory or Qualified Options) and Nonqualified Stock Options (NSOs, NQSOs or sometimes called Nonquals). Many aspects of stock options are impacted by which type you hold so developing this familiarity early will help discussions later on. I’m not going to address Employee Stock Purchase Programs (ESPPs), as they are inappropriate for and rarely seen at startups. For a
super-detailed look at the two options visit this write-up by Johnson & Berenson LLP. • Most option agreements will state which type of option you hold. All ISOs need to be issued under an ISO Agreement, which pretty much ensures that the agreement is named something like “Incentive Stock Option Agreement”. I’ve never seen an ISO Agreement that wasn’t named that way, but I’m not familiar enough with the legal aspects to guarantee this is always the case. The easiest way to find out if you hold ISOs or NSOs is to ask your employer.
Incentive Stock Options •
•
•
• • •
• • •
Incentive Stock Options are a class of options created by the IRS that provide tax advantages over NSOs. These tax advantages are two-fold: ISOs are taxed on the stock sale (not the grant or exercise). NSOs are taxed on the exercise of the option. You don’t make money until you sell the stock. There can often be gaps between the time you exercise the option (buy the stock), and sell the stock. There are plenty of scenarios where you may exercise the option, but never have the opportunity to sell it. This benefit prevents the worst-case NSO scenario from happening: your unsold, exercised stock becomes worthless. You’ve lost the money you paid to exercise the option, and you would also have to pay the IRS ordinary income taxes on the difference between the exercise price you paid and the market value of the option. So, if you paid $100 to exercise stock worth $1000, you could have to pay the IRS up to 35% of the $900 ‘gain’. ISO shares may receive long-term capital gain tax treatment. If they have been held long enough to satisfy a special holding period ISO stocks can be taxed at lower long-term capital gains tax rates. Long-term capital gains are currently 15%. Ordinary income tax rates can go up to 35%. It is also worth noting that the Alternative Minimum Tax is increasingly reducing the tax benefits of ISOs. But more on this in a later post. There are multiple eligibility requirements for an ISO option. The notable requirements include (but aren’t limited to): Employees only Must be granted at fair market value (409A hell for companies) Non-transferable (except through inheritance) Must be granted within 10 years of shareholder/board approval Must be exercised within 10 years of grant
Nonqualified Stock Options
•
• • • •
•
•
•
•
Any option that does not ‘qualify’ to meet the requirements of an ISO or ESPP is an NSO (hence their nickname: ‘Nonquals’). NSOs are far more flexible than ISOs, but several important differences include: Can be given to anyone (partners, consultants, board members, gas station attendants, etc.) Can be priced below (or above) current market value Typically taxed on exercise at ordinary income tax rates. In some instances, they can be taxed at issuance. ISOs offer tax advantages, but NSOs offer substantial flexibility. Consequently, many startups issue both ISO and NSO options depending on the situation. As an employee, in most cases you would prefer to receive ISO instead of NSO options. A put option (sometimes simply called a "put") is a financial contract between two parties, the seller (writer) and the buyer of the option. The buyer acquires a short position with the right, but not the obligation, to sell the underlying instrument at an agreed-upon price (the strike price). If the buyer exercises his right to sell the option, the seller is obliged to buy it at the strike price. In exchange for having this option, the buyer pays the writer a fee (the option premium). The terms for exercising the option's right to sell it differs depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration, while an American put option allows exercise at any time before expiration. The most widely-traded put options are on equities, but they are traded on many other instruments such as interest rates (see interest rate floor) or commodities. The put buyer either believes that the underlying asset's price will fall by the exercise date or hopes to protect a long position in it. The advantage of buying a put over short selling the asset is that the option owner's risk of loss is limited to the premium paid for it, whereas the asset short seller's risk of loss is unlimited (its price can rise greatly, theoretically, infinitely, all the short seller's loss. The put buyer's prospect (risk) of gain is limited to the option's strike price less the underling’s spot price and the premium/fee paid for it. The put writer believes that the underlying security's price will rise, not fall. The writer sells the put to collect the premium. The put writer's total potential loss is limited to the put's strike price less the spot and premium already received. Puts can be used also to limit the writer's portfolio risk and may be part of an option spread.
A naked put, also called an uncovered put, is a put option whose writer (the seller) does not have a position in the underlying stock or other instrument. This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. If the buyer fails to sell the shares, then the seller keeps the option premium as a 'gift' for playing the game. • If the underlying stock's market price is below the option's strike price when expiration arrives, the option owner (buyer) can exercise the put option, forcing the writer to buy the underlying stock at the strike price. That allows the exerciser (buyer) to profit from the difference between the stock's market price and the option's strike price. But if the stock's market price is above the option's strike price at the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium (fee) paid for it (the writer's profit). • The seller's potential loss on a naked put can be substantial. If the stock falls all the way to zero (bankruptcy), his loss is equal to the strike price (at which he must buy the stock to cover the option) minus the premium [(market price)] received. The potential upside is the premium received when selling the option: if the stock price is above the strike price at expiration, the option seller keeps the premium, and the option expires worthless. During the option's lifetime, if the stock moves lower, the option's premium may increase (depending on how far the stock falls and how much time passes). If it does, it becomes more costly to close the position (repurchase the put, sold earlier), resulting in a loss. If the stock price completely collapses before the put position is closed, the put writer potentially can face catastrophic loss. •
Call Option •
•
Definition: A call option is an option contract in which the holder (buyer) has the right (but not the obligation) to buy a specified quantity of a security at a specified price (strike price) within a fixed period of time (until its expiration). For the writer (seller) of a call option, it represents an obligation to sell the underlying security at the strike price if the option is exercised. The call option writer is paid a premium for taking on the risk associated with the obligation.
Buying Call Options
• Call buying is the simplest way of trading call options. Novice traders often start off trading options by buying calls, not only because of its simplicity but also due to the large ROI generated from successful trades. •
A Simplified Example
• Suppose the stock of XYZ Company is trading at $40. A call option contract with a strike price of $40 expiring in a month's time is being priced at $2. You strongly believe that XYZ stock will rise sharply in the coming weeks after their earnings report. So you paid $200 to purchase a single $40 XYZ call option covering 100 shares.
• Say you were spot on and the price of XYZ stock rallies to $50 after the company reported strong earnings and raised its earnings guidance for the next quarter. With this sharp rise in the underlying stock price, your call buying strategy will net you a profit of $800. • Let us take a look at how we obtain this figure. • If you were to exercise your call option after the earnings report, you invoke your right to buy 100 shares of XYZ stock at $40 each and can sell them immediately in the open market for $50 a share. This gives you a profit of $10 per share. As each call option contract covers 100 shares, the total amount you will receive from the exercise is $1000. • Since you had paid $200 to purchase the call option, your net profit for the entire trade is $800. It is also interesting to note that in this scenario, the call buying strategy's ROI of 400% is very much higher than the 25% ROI achieved if you were to purchase the stock itself.
Selling Call Options •
Instead of purchasing call options, one can also sell (write) them for a profit. Call option writers, also known as sellers, sell call options with the hope that they expire worthless so that they can pocket the premiums. Selling calls, or short call, involves more risk but can also be very
•
profitable when done properly. One can sell covered calls or naked (uncovered) calls. Covered Calls The short call is covered if the call option writer owns the obligated quantity of the underlying security. The covered call is a popular option strategy that enables the stockowner to generate additional income from their stock holdings thru periodic selling of call options. See our covered call strategy article for more details.
Naked (Uncovered) Calls •
When the option trader writes calls without owning the obligated holding of the underlying security, he is shorting the calls naked. Naked short selling of calls is a highly risky option strategy and is not recommended for the novice trader. See our naked call article to learn more about this strategy.
Call Spreads •
•
•
•
•
A call spread is an options strategy in which equal number of call option contracts are bought and sold simultaneously on the same underlying security but with different strike prices and/or expiration dates. Call spreads limit the option trader's maximum loss at the expense of capping his potential profit at the same time. Call option. Buying a call option gives you, as owner, the right to buy a fixed quantity of the underlying product at a specified price, called the strike price, within a specified time period. For example, you might purchase a call option on 100 shares of a stock if you expect the stock price to increase but prefer not to tie up your investment principal by investing in the stock. If the price of the stock does go up, the call option will increase in value. You might choose to sell your option at a profit or exercise the option and buy the shares at the strike price. But if the stock price at expiration is less than the strike price, the option will be worthless. The amount you lose, in that case, is the premium you paid to buy the option plus any brokerage fees. In contrast, you can sell a call option, which is known as writing a call. That gives the buyer the right to buy the underlying investment from you at the strike price before the option expires. If you write a call, you are obliged to sell if the option is exercised and you are assigned to meet the call.
Definition of stock valuation
The process of calculating the fair market value of a stock by using predetermined formulas that factors in various economic indicators. Stock valuation can be calculated using a number of different methods. The most common methods used are the discounted cash flow method, the P/E method, and the Gordon model. Whichever method is chosen must be done accurately so that the price of stock can be valued properly. Approximate valuation approaches
Average growth approximation: Assuming that two stocks have the same earnings growth, the one with a lower P/E is a better value. The P/E method is perhaps the most commonly used valuation method in the stock brokerage industry.] By using comparison firms, a target price/earnings (or P/E) ratio is selected for the company, and then the future earnings of the company are estimated. The valuation's fair price is simply estimated earnings times target P/E. This model is essentially the same model as Gordon's model, if k-g is estimated as the dividend payout ratio (D/E) divided by the target P/E ratio. Constant growth approximation: The Gordon model or Gordon's growth model is the best known of a class of discounted dividend models. It assumes that dividends will increase at a constant growth rate (less than the discount rate) forever. The valuation is given by the formula:
.
and the following table defines each symbol: Symb Meaning ol
Units
estimated stock price
$ or € or £
last dividend paid
$ or € or £
discount rate
%
the growth rate of the dividends
%
Stock Valuation based on Earnings Stock valuation based on earnings starts out with one giant logical leap: you assume that each dollar of earnings per share of a company is really worth one actual dollar of income to you as a stockholder. This is theoretically because you expect the company to use that dollar in a beneficial way: for example, they could use it to pay you a dividend; or they could invest it in their own growth, which would cause future earnings to be even greater. You also generally assume that the company will go through several distinct phases, starting with a "growth" phase where earnings are increasing at a predictable rate, followed by a "mature" phase where earnings level off to a constant level. To find the value of a stock, you need to calculate all of these future earnings (out to infinity!), and then use your own desired rate of return as a discount rate to find their present value. The infinite sum of these present values is the fair market value of the stock; or more accurately, it's the maximum price you should be willing to pay.
(The current fair market value is equal to the sum of the heights of all of the green
bars, which are the present values of the corresponding blue bars.To get the formula, we'll define some variables:
We're assuming that earnings will start to grow for N years, and then level off: Year
Earnings
1
E(1 + G)
2
E(1 + G)2
N
E(1 + G)N
N+1
E(1 + G)N
N+2
E(1 + G)N
Now we'll write R for our desired rate of return, and use it to find the present values of all of these earnings: Year
Present Value of Earnings
1
E(1 + G)/(1 + R)
2
E(1 + G)2/(1 + R)2
N
E(1 + G)N/(1 + R)N
N + 1 E(1 + G)N/(1 + R)N+1 N + 2 E(1 + G)N/(1 + R)N+2
What we've got here is two geometric series; one going from 1 to N, and the other going from N + 1 to infinity. The result is basically too ugly to bother writing out; it's more sensible just to use the formula for the geometric series in a spreadsheet or computer program. When people do write it out, they usually write it this way: P = E1Q + E2Q2 + ... + ENQN + ENQN x Q/(1 - Q) Where E2 is the earnings in year 2 (or whatever) and Q is the so-called "discount factor" 1/(1 + R).
Zero-Growth Case One special case is actually interesting to write out though. If you assume that the stock is already in the "mature", zero-growth years -- ie, that N is zero -- the geometric series formula will simplify to: P = E/R or, equivalently, P/E=1/R So if you take a desired return of 11%, you find that the theoretical "fair" P/E ratio of the zero-growth stock is 1/.11 = 9.09, which sounds reasonable. Constant-Growth Case A second special case that people use is the "constant growth forever" case, meaning N is infinity. The formula in this case simplifies to P = E1 / (R - G) Where E1 is earnings over the next 12 months. This approach can be dangerous. Constant growth forever means the company is going to get infinitely big, which is a hard concept to fit into a common sense understanding of valuation. The formula will give you a number as long as the growth rate G is less than the discount rate R; but you can force it to give you a ridiculously huge number if you make G very close to R. This graph won't let you try that - the blue bars could blow through the top of your screen and hurt somebody - but you can see it happen in the discounted cash flows calculator in the stock valuation article.
Types of stock valuation Stocks have two types of valuations. One is a value created using some type of cash flow, sales or fundamental earnings analysis. The other value is dictated by how much an investor is willing to pay for a particular share of stock and by how much other investors are willing to sell a stock for (in other words, by supply and demand). Both of these values change over time as investors change the way they analyze stocks and as they become more or less confident in the future of stocks. Let me discuss both types of valuations. Earnings per Share (EPS). You've heard the term many times, but do you really know what it means. EPS is the total net income of the company divided by the number of shares outstanding. It sounds simple but unfortunately it gets quite a bit more complicated. Companies usually report many EPS numbers. They usually have a GAAP EPS number (which means that it is computed using all of mutually agreed upon accounting rules) and a Pro Forma EPS figure (which means that they have adjusted the income to exclude any one time items as well as some non-cash items like amortization of goodwill or stock option expenses). The most important thing to look for in the EPS figure is the overall quality of earnings. Make sure the company is not trying to manipulate their EPS numbers to make it look like they are more profitable. Also, look at the growth in EPS over the past several quarters / years to understand how volatile their EPS is, and to see if they are an underachiever or an overachiever. In other words, have they consistently beaten expectations or are they constantly restating and lowering their forecasts? Price to Earnings (P/E). Now that you have several EPS figures (historical and forecasts), you'll be able to look at the most common valuation technique used by analysts, the price to earnings ratio, or P/E. To compute this figure, take the stock price and divide it by the annual EPS figure. For example, if the stock is trading at $10 and the EPS is $0.50, the P/E is 20 times. To get a good feeling of what P/E multiple a stock trades at, be sure to look at the historical and forward ratios. Growth Rate. Valuations rely very heavily on the expected growth rate of a company. For starters, you can look at the historical growth rate of both sales and income to get a feeling for what type of future growth that you can expect. However, companies are constantly changing, as well as the economy, so don't rely on historical growth rates to predict the future,
but instead use them as a guideline for what future growth could look like if similar circumstances are encountered by the company. To calculate your future growth rate, you'll need to do your own investment research. The easiest way to arrive at this forecast is to listen to the company's quarterly conference call, or if it has already happened, then read a press release or other company article that discusses the company's growth guidance. However, remember that although company's are in the best position to forecast their own growth, they are not very accurate, and things change rapidly in the economy and in their industry. So before you forecast a growth rate, try to take all of these factors into account. • They may have been growing earnings at 10 - 15% over the past several quarters / years because of cost cutting, but their sales growth could be only 0 - 5%. This would signal that their earnings growth will probably slow when the cost cutting has fully taken effect. Therefore you would want to forecast earnings growth closer to the 0 - 5% rate than the 15 20%. PEG Ratio. This valuation technique has really become popular over the past decade or so. It is better than just looking at a P/E because it takes three factors into account; the price, earnings, and earnings growth rates. To compute the PEG ratio (a.k.a. Price Earnings to Growth ratio) divide the Forward P/E by the expected earnings growth rate (you can also use historical P/E and historical growth rate to see where it's traded in the past). This will yield a ratio that is usually expressed as a percentage. The theory goes that as the percentage rises over 100% the stock becomes more and more overvalued, and as the PEG ratio falls below 100% the stock becomes more and more undervalued. The theory is based on a belief that P/E ratios should approximate the long-term growth rate of a company's earnings. Whether or not this is true will never be proven and the theory is therefore just a rule of thumb to use in the overall valuation process. Return on Invested Capital (ROIC). This valuation technique measures how much money the company makes each year per dollar of invested capital. Invested Capital is the amount of money invested in the company by both stockholders and debtors. The ratio is expressed as a percent and you should look for a percent that approximates the level of growth that you expect. In it's simplest definition, this ratio measures the investment return that management is able to get for its capital. The higher the number, the better the return. Return on Assets (ROA). Similar to ROIC, ROA, expressed as a percent, measures the company's ability to make money from its assets. To measure the ROA, take the pro forma net income divided by the total
assets. However, because of very common irregularities in balance sheets (due to things like Goodwill, write-offs, discontinuations, etc.) this ratio is not always a good indicator of the company's potential. Price to Sales (P/S). This figure is useful because it compares the current stock price to the annual sales. In other words, it tells you how much the stock costs per dollar of sales earned. To compute it, take the current stock price divided by the annual sales per share. The annual sales per share should be calculated by taking the net sales for the last four quarters divided by the fully diluted shares outstanding (both of these figures can be found by looking at the press releases or quarterly reports). The price to sales ratio is useful, but it does not take into account any debt the company has. For example, if a company is heavily financed by debt instead of equity, then the sales per share will seem high (the P/S will be lower). All things equal, a lower P/S ratio is better. However, this ratio is best looked at when comparing more than one company. Market Cap. Market Cap, which is short for Market Capitalization, is the value of all of the company's stock. To measure it, multiply the current stock price by the fully diluted shares outstanding. Remember, the market cap is only the value of the stock. To get a more complete picture, you'll want to look at the Enterprise Value. Enterprise Value (EV). Enterprise Value is equal to the total value of the company, as it is trading for on the stock market. To compute it, add the market cap (see above) and the total net debt of the company. The total net debt is equal to total long and short term debt plus accounts payable, minus accounts receivable, minus cash. The Enterprise Value is the best approximation of what a company is worth at any point in time because it takes into account the actual stock price instead of balance sheet prices. When analysts say that a company is a "billion dollar" company, they are often referring to it's total enterprise value. Enterprise Value fluctuates rapidly based on stock price changes. EV to Sales. This ratio measures the total company value as compared to its annual sales. A high ratio means that the company's value is much more than its sales. To compute it, divide the EV by the net sales for the last four quarters. This ratio is especially useful when valuing companies that do not have earnings, or that are going through unusually rough times. For example, if a company is facing restructuring and it is currently losing money, then the P/E ratio would be irrelevant. However, by applying a EV to Sales ratio, you could compute what that company could trade for when it's restructuring is over and its earnings are back to normal.
• ✔ ✔
✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔
• ✔ ✔ ✔
✔ •
•
EBITDA. EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is one of the best measures of a company's cash flow and is used for valuing both public and private companies. income statement, take the net income and then add back interest, taxes, depreciation, Valuing Stock Options and Other Equity Based Compensation Appraisal Economics can value stock options and other equity based compensation for various purposes, including: Financial reporting, principally under SFAS 123R Gift and estate tax valuations Other tax-related purposes We have extensive experience valuing all types of stock options and equity based compensation, from simple call options to more complex derivatives, including: Straight stock options Restricted stock Stock options with accreting exercise prices Profits units Outperformance units Contingent purchase price elements We have valued instruments that are subject to vesting conditions including earnings targets, share price targets, total return targets and, of course, time-based vesting. We apply a wide range of valuation techniques, including: Closed form models such as Black-Scholars-Merton Lattice models, such as a binomial model Synthetic option modeling Monte Carlo simulations Valuing stock options and other types of equity based compensation has become more important with the implementation of SFAS 123R. Commencing in the first fiscal year subsequent to June 15, 2005, all publicly traded companies are required to expense stock based compensation in accordance with SFAS 123R. The Gordon's Growth Model or simply Gordon Model is the most recognized model in the category of discounted dividend models. It presumes that the dividends would grow at a fixed rate of growth (lower in comparison to the discount rate) always. The valuation is expressed with the help of the following formula:
P = D.? ((1+g)/ (1+k))i = D.((1+g)/(k-g)), where the summation takes the value of I varying from 1 to ? (Infinity). • Here, P refers to the estimated stock price and the units may be US$, UK£, or € (Euro) • D refers to the last dividend paid and the units may be US$, UK£, or € (Euro) • k refers to the discount rate and the unit is % • g refers to the rate of growth of dividends and the unit is % Potential price or market criteria •
According to the opinion of a number of people, if a share is registered in a well managed share market and there are huge numbers of transactions, the price that has been enlisted would be near the calculated fair value. This is termed as efficient market hypothesis.
Therefore, furthermore to the basic economic standards, market standards also should be taken into consideration for market based valuation. Valuation of a share is not performed solely to calculate the fair value of the share, this is also done for ascertaining the expected price range considering the market conduct characteristics. One of the principal behavioral valuation devices is stock image. This is basically a coefficient, which connects the market value and fair value (theoretical).
history of the satyam computer • 1987 ➢ On 24th June Company was incorporated as a Private Limited Co. for providing Software Development and Consultancy Services to large corporations. The company was promoted by B Rama Raju and B Ramalinga Raju. The company has set up two software Technology Parks, one at Mayfair Centre, Secunderabad and other at Qutuballapur of Ranga Reddy Dist. of A.P. The company also developed a software Development center in Bangalore. • 1991 ➢ On 26th August it was converted into a Public Limited Company. • 1992 ➢ The Company went in for a Public Issue of Equity shares. The company has set up facilities at Secunderabad, Hyderabad and Bangalore. The Company has created infrastructural facilities consisting of workstations with modern communication and networking equipment. ➢ Satyam went in for a public issue of equity shares with the main objective of setting up a software technology park and a 100 percent export oriented unit for software development with a dedicated 64 KBPS satellite link. • 1993 ➢ During the year company has entered into a joint venture agreement with Dun & Bradstreet Corp., U.S.A. for development of software’s. • 1994 ➢ On January 26th a joint venture company called Dun & Bradstreet Satyam Software (P) Ltd. was incorporated. • 1995 ➢ During the year company issued 37,17,000 12% unsecured fully convertible debentures part "A" of Rs.100 each on right basis for the shareholders in proportion of 1 FCD for every 5 shares held. The company also issued 37, 17,000-12% FCD's-part `B' Rs.60 per debentures in August which can be converted into equity shares of Rs.10 each at premium of Rs.50 per share on August 1996. • 1996
During the year two offices were set up, one in USA and other in Japan. And the company has added new business partners in Australia, Canada, Japan and Europe. ➢ During the year company promoted 4 subsidiaries. Viz Stayam Renaissance Consulting Ltd., Satyam Enterprise Solutions Pvt. Ltd., Stayam Info way Pvt. Ltd and Satyam Info way Pvt. Ltd. • 1997 ➢ During the year company has added additional space in Secunderabad and Bangalore. And new software development centers were opened in Hyderabad, Pune, Chennai and Bhubaneswar during the year. The company has established a school at Indian Institute of Information Technology at Hyderabad, joining a select band of global corporations like IBM, Microsoft and oracle who are also participating in IIIT's activities. ➢ Satyam Computer Services Ltd. (SCSL), the Hyderabad-based software company, setting up three more new software development centers at Chennai, Pune and Bhubaneswar. ➢ Satyam Info way (P) Ltd. (SIL), a subsidiary of Satyam Computers, has signed an agreement with Sterling Commerce, International Group of the U.S. to provide electronic data interchange (EDI) and other value added electronic commerce solutions throughout India. ➢ Two new offices have already been set up in the US, and another in Japan. New business partners have been added in Australia, Canada, Japan and Europe. ➢ Satyam Info way is a 100 per cent subsidiary of the Hyderabad-based software major, Satyam Computer Services Ltd. ➢ Dun & Bradstreet Corp. USA (D&B), is likely to buy out the 24 per cent stake of joint venture partner Satyam Computers Services and gain majority control, 76 per cent of the stake is held by D&B. ➢ The joint venture was set up to provide software services to D&B client’s world wide. Dun and Bradstreet - Satyam Software is the largest single location software unit for D&B in the world. ➢ Satyam Computer has four subsidiaries: Satyam Spark Solutions, Satyam Info ways, Satyam enterprise Solutions and Satyam Renaissance, Consulting, Spark solutions focuses on software products, Info ways operates in the field of electronic commerce and electronic data interchange. ➢ Satyam Computer Services Ltd announced that it had divested its 24 per cent ownership of Dun & Bradstreet Satyam Software Pvt. Ltd (DBSS) in favor of Cognizant Software Solutions Corporation, a subsidiary of Cognizant Corporation, US. ➢
➢
➢
Satyam Computer Services Ltd., has been selected by the Switzerlandbased World Economic Forum and World Link magazine as one of India's most remarkable and rapidly growing entrepreneurial companies. The funds will be raised through a Rs 20 crore debt and the rest will be provided by the parent company as equity in the subsidiary to set up the nationwide network.
• 1998 ➢ -Satyam Info way, a wholly-owned subsidiary of Satyam Computer Services Ltd., has received the Technical Engineering Centre (TEC) approval from the Department of Telecommunications (Dot) for commercializing its operations. ➢ The company is a 100 percent EOU under the software technology park scheme of the Department of Electronics, Government of India. It is presently engaged in development and export of software to USA, Canada, Sweden, Germany etc. ➢ Satyam Computer Services Ltd. opened its first overseas development centre in New Jersey. The company proposes to set up seven such development centers outside India, four of them in the US. ➢ Satyam Computer Services Ltd. has entered into an agreement with the National Securities Depository Ltd. (NSDL) for providing its shareholders with the facility of trading in the dematerialized form of shares. • 1999 ➢ -The company is setting up offsite development centers which will have high margin business and also ventured into the euro conversion business which is slowly taking-off. ➢ Sataym Computer Services Ltd. will be setting up two offsite development centers in addition to the existing seven centers across the world. ➢ Satyam Computer Services Ltd., one of the fastest growing IT companies in the country, has taken significant decisions recently including the merger of three of its subsidiaries with the parent company and a 1:1 bonus issue. ➢ The company has also set up India's first Indian Institute of Information Technology and is the first software company in India to get accredited by (SEI CMM) level 5 certificates. ➢ Satyam Info way Ltd, is the second largest Internet services provider in India based on the number of customers. • 2000
➢ -Vision-Compass Inc., the US-based wholly owned subsidiary of Satyam Computer Services Ltd., announced the global launch of Vision Compass, a collaborative enterprise management software product. ➢ The Company has entered into an agreement with Venture Global Engineering LIC, USA, to set-up a 50:50 joint venture for the software development of CAD/CAM/CAE at Hyderabad. ➢ The Company launched an organization-wide transformation training program - Customer-Oriented Global Organization (COGO) initiative. ➢ The Company has announced its tie-up with Vignette Corporation of the US for the implementation of e-business applications. ➢ Satyam Computer Services signed an equal joint venture with $6.3 bn US networking company Computer Associates Inc (CA) to set up an Application Service Provider (ASP) for small and medium enterprises. ➢ The Company and Texas-based Enterprise Inc, a major provider of collaboration platform software for e-markets. ➢ Pepsi has entered its second cyberspace venture forging a tie-up with the company and Hindustan Petroleum Corporation as the official beverages supplier for their "Speed net project". ➢ SAS Institute India, a wholly owned subsidiary of the US-based SAS Institute Inc., has tied up with the company as a SAS quality partner to provide comprehensive data warehousing and data mining solutions to various industry verticals. ➢ The Company has formed a strategic alliance with Microsoft Corporation to provide Web and enterprise integration application deployment solutions to US public sector customers utilizing Windows DNA 2000 technology. ➢ The Company and TRW Inc, the US-based $17 billion company, that they have signed a letter of intent to form a strategic alliance wherein the newly-formed joint venture would provide TRW and other global companies both information systems and engineering services. ➢ The Company has signed an agreement with the US-based edatafinder.com to build a comprehensive business intolerance e-market site that will supply more than 200 types of business data online to organizations around the globe. ➢ The Company has been named a 2000 Web Business 50/50 award winner for SatyamWorld - its corporate intranet, to become the only company to feature in this list. ➢ The Company has realized Rs 17012.53 lakes net of transaction costs and tax through the sale of 347,2000 No. of equity shares of Satyam Info say Ltd. to the Government of Singapore Investment Corporation Pvt. Ltd.
➢ The Company has signed a contract with Mercator, the IT subsidiary of the UAE-based Emirates group, to provide product maintenance and support activities for Mercator's products in the aviation industry. ➢ Satyam Computer Services inaugurated an offshore development centre `Mercator Satyam Centre' - to exclusively handle projects for the $60 million Mercator, an IT subsidiary of the UAE based Emirates group. ➢ C Srinivas (Srini) Raju has resigned as the executive director of the company with effective from September 1. ➢ Satyam Computer Services Ltd. and the US-based SEEC Inc have entered into a strategic alliance to leverage the latter's tools and technology for Sat yam’s worldwide e-business transformation practice. ➢ The Company has received the National HRD award - 2000 for outstanding contributions to HRD. ➢ Satyam Computers is setting up a joint venture with the $17 billion TRW Inc, a Fortune-100 Company in the US. - The Company has re launched its shopping channel as www.sifymall.com, which would now offer ` celebration of value' shopping. ➢ Prabhu Sinha, a senior vice-president of Satyam Computer Services, received Qimpro Silver Award for 2000-01. ➢ Satyam Computer Services Ltd. and Arriba Inc., a leading business to business e-commerce platform provider has entered into an alliance. ➢ Satyam Manufacturing Technology, a joint venture between Satyam Computers Services and US-based TRW, has received a $200 million contract from TRW. ➢ Mr. B. Ramalinga Raju, Chairman of Satyam Computer Services, has been awarded the IT Man of the Year 2000 Award by Dataquest. ➢ Satyam Computer Services has acquired 23 acres in Bangalore to set up a new software development centre. • 2001 ➢ The Company has entered into a long-term collaboration agreement with Centre for Cellular and Molecular Biology, to jointly identify business opportunities at the global level for IT-enabled services in bioinformatics and related fields. ➢ The Company has entered into a partnership with i2Technolgies. ➢ Satyam Computer Services Ltd., the software services company based in Hyderabad, is set to commission its new development centre in the Dubai Internet City. ➢ The Company has been rated as one of the 10 well-regarded companies in the country in prestigious 2000/2001 Review 2000 Survey conducted by the Hong Kong-based Far Eastern Economic Review. ➢ Satyam Computer Services has become the first of the top Indian software services companies to open its facility at Dubai Internet City.
➢
➢
➢
• ➢ ➢
➢
➢
• ➢ ➢ ➢ ➢ ➢ ➢
The Company has won the Frost & Sullivan market engineering award for Competitive Strategy 2001 in the application service provider category. - The American depositary shares (ADS) of Satyam Computer Services on May 16 was listed at $11.16 on the New York Stock Exchange (NYSE) at a premium of 14.9 per cent to the offer price. Satyam Computer Services has expanded its partnership with the USbased Health axis Inc., a leading supplier of healthcare technology solutions. Satyam has also agreed to become the primary integration partner for deploying the Insur-Enroll solution. Satyam bagged a major project from Health axis in the last quarter. Satyam Computer Services on August 27 announced a global strategic alliance with SEEC Inc., a Pittsburgh-based leading provider of component and web services solutions for insurance and other industries. 2002 Satyam Computer Launches operations in China. Satyam Computer Services Ltd a leading global IT services firm, on August 8, 2002 announced the signing of an agreement with SaintGobain Abrasives, Inc a Massachusetts (USA) based corporation to provide IT services. Satyam Computer Services Ltd has entered into a Premier Partnership with Ireland-based IONAr, a leading e-Business Platform provider for Web Services Integration, to deliver the Orbit E2A Web Services Integration and Application Server Platforms. Nipuna Services Ltd, the BPO subsidiary of Satyam Computer Services Ltd announced the appointment of Mrs. Ram Ramasundar as COO of the company. Further the company has also appointed Venkaswamy Nagendra as Chief Marketing Officer and M Satyanarayana as Chief Marketing Officer of the company. 2003 Jargon Technologies appoints Satyam Computer for State-of-the-Art Enterprise Resource Planning Solution Embarks on an organizational and business transformation initiative termed Orbit 5 Giga Information Group includes Satyam Computer Services Ltd. as the top choice for SAP support among offshore service providers World Bank gives outsourcing contract to Satyam Services Satyam and Ansys Inc Forge Global Strategic Alliance, Offer Process Integrated Engineering Simulation Solutions Enters into strategic alliance with semiconductor major Texas Instruments to provide consulting services for DSP (digital signal processing) customers
➢ Satyam Computer & Correlate Technologies announce partnership to provide Correlate K-Map solutions worldwide ➢ Sets up Offshore Solutions Center for TRW Automotive in Chennai ➢ Satyam, Hummingbird open ETL/BI competency centre in Singapore ➢ Satyam unveils Samanvay to create learning opportunities to staff families ➢ Satyam & Microsoft sign MOU to provide world class IT outsourcing services to Asia Pacific region ➢ Launches Global Solutions Centre in Malaysia ➢ Conducts first ever global customer summit (SatyamWorld) In San Diego, California, USA ➢ Forms alliance with Yahoo, a leading portal and collaboration platform provider, to deliver solutions centered on Yahoo! Portal and Messenger platforms ➢ Bags 2003 Account Performance Award from Strategic Account Management Association (SAMA) during its annual conference in Orlando, Florida ➢ Implements SAP at Oman Trading Establishment ➢ Signs up a long term contract with World Bank ➢ Sat yam’s solution bags CSI National IT Award for best packaged application ➢ Approves enhancement of investment limit by Foreign Institutional Investors (FII's) under Portfolio Investment Scheme from 49% to 60% ➢ Commences a Student Administration System (SAS) solution implementation for Singapore- based Universities 21 Global (U21G), a leading online university initiative, offering on-line higher education to students all over the world ➢ Sat yam’s advanced e-Logistic Solution System for Konsortium Logistic Bhd Malaysia goes live ➢ Launches Offshore Development Center (ODC) in Bangalore to provide high end product development support to Fujitsu Ltd., a leading provider of customer focused IT and communication solution for the global marketplace ➢ Develops a virtual facility in the 120-acre technology campus located in Hyderabad ➢ Warburg Pincus, a venture capital & equity fund, sells 2.6% Satyam shares ➢ Allotment of 11533 equity shares through circular resolution on October 28, 2003 under stock option plans of the company. ➢ The company has developed a virtual facility in the 120-acre technology campus located in Hyderabad. Satyam Live captures the soft infrastructure, the products etc. of a knowledge driven company.
➢ The Compensation Committee of Directors of the company allotted 3507 equity shares ➢ Allotted 24271 equity shares through circular resolution on October 28, 2003 under stock option plans of the company. ➢ Company has signed a multi-year agreement with American International Technology Enterprises, Inc. ➢ The company has sold 1m equity shares of Sify in a private placement through Sify's sponsored ADR program. ➢ The company sells its Sify stake to Venture tech increasing venture tech's stake to 16.8 per cent from 13.8 per cent. ➢ Satyam Computer Services honored with prestigious IBM Lotus award ➢ Satyam acquires Mega soft in stock deal ➢ Sat yam’s new development centre in Canada ➢ Fidelity Investments buys 245,500 equity shares of the company, stake increases to 5.05% ➢ Signs a regional partnership with the Nasdaq-listed Actuate Corporation, an enterprise reporting applications provider, to collaborate in the Asia Pacific region. Following this move, the Satyam-Actuate Centre of Excellence will be set up at Sat yam’s Global Solutions Centre in Cyberjaya, Malaysia • 2004 ➢ Sat yam’s Nipuna appoints new CEO & COO ➢ Satyam Computer Services Ltd has entered into a tie-up with OAT Systems Inc of the US to provide comprehensive radio frequency identification devices (RFID)-based solutions to its customers across the globe ➢ IT major Satyam Computer Services Ltd (SCSL) has launched a unique platform called 'Virtue' which will provide two-way communication between the company and the selected candidates for employment ➢ Satyam Computer Services Limited on Saturday inaugurated the company's ninth facility in Hyderabad ➢ Satyam launches its largest Global Development Center outside India at Melbourne, Australia ➢ Satyam forges alliance with Cyclone Commerce ➢ Satyam Computer joins mainframe migration alliance (MMA) • 2005 ➢ Satyam ranked 3rd in Corporate Governance Survey by Global Institutional Investors ➢ Satyam Computer launches ESA service offering on May 05, 2005. ➢ Satyam Computer joins Microsoft Insurance Initiative ➢ Satyam Computer enters into global alliance agreement with Meridian Systems.
➢ ➢
➢ • ➢ ➢
• ➢
➢
➢
• ➢
➢
• ➢
Satyam Computer launches business solutions laboratory, FUTURUS Satyam Computer announces partnership with Hungary's premier science IT institute MTA SZTAKI announced a services and technology collaboration to offer supply chain solutions to customers in the Asia Pacific region across industry verticals. 2006 Satyam Computer launches Offshore Development Center for INVISTA in Bangalore Satyam Computer Services Ltd on October 26, 2006 has announced that it has achieved global certification in the ISO 9001 (quality management), ISO 20000 (information technology service management for Infrastructure Management Services and Network & Systems), and ISO 27001 (Information Security Management) standards. With the successful audit of the development center at Budapest, Hungary, all three certifications were conferred at an organization-wide level. 2007 Satyam Computer Services Ltd has on March 15, 2007 has announced that it has implemented an organization-wide, virtual learning environment called Satyam Learning World. Satyam Computer Services Ltd on June 04, 2007 has announced that it recently won Computer Associates Vision, Impact, Progress (VIP) Award for an internal implementation and optimization of CA's service desk platform. Satyam Computer Services Ltd on June 11, 2007 has announced that it has forged an alliance with US-based JDA Software Group Inc., the leading provider of supply and demand chain solutions to 5,500 of the world's top retailers, manufacturers, and suppliers. 2008 Satyam Computer Services Ltd has informed that Satyam BPO, the business process outsourcing arm of Satyam, a leading global business and information technology services Company, on April 10, 2008 announced that it has won two prestigious Shared Services Excellence awards from the International Quality and Productivity Council. Satyam Computer has announced it has inked a pact with Info spectrum to give third-party maintenance, repair and overhaul (MRO) and component repair services for the global aviation industry. 2009 Tech Mahindra has announced the name change of scam hit Satyam Computers as Mahindra Satyam. This rebranding exercise symbolizes an amalgamation of the values of Mahindra Group with Sat yam’s fabled expertise, even as it retains that part of Sat yam’s identity which signifies commitment, purpose and proficiency of the organization and its people,
according to Anand Mahindra, vice-chairman and managing director of the Mahindra Group. ➢ Mahindra Satyam stated that it has secured contracts worth Rs 38 crore in the Middle East and North America region (MENA) in Q2 of FY 2009-10. of satyam computer Ltd Profile
Boards of directors C. Achuthan
C. Achuthan was appointed to the Board on January 11, 2009 as an independent director. Previously, Achuthan was the Chairman of the Securities Appellate Tribunal. Prior to that, Achuthan was a member of the Securities and Exchange Board of India (SEBI). Achuthan is currently a member of the board of directors of the National Stock Exchange of India Ltd. and a trustee of the ING Mutual Fund. Achuthan holds a masters degree in economics from Kerala University and a degree in law from Bombay University.
T. N. Manoharan
T.N. Manoharan was appointed to the Board on January 15, 2009 as an independent director. Manoharan is a member of the ICAI with 25 years of experience as a chartered accountant in India. Manoharan is also a visiting faculty member at the Reserve Bank of India Staff College. Previously, Manoharan served as Chairman of the ICAI Accounting Research Foundation, President of the ICAI, member of the Accounting Standards Board of the ICAI and member of the Accounting Standards Committee of SEBI. Manoharan is currently a member of the board of directors of Sahara India Financial Corporation Limited, Alpha Capital Management Private Limited, the Nani Palkhivala Arbitration Centre and MCA Management Consultants Private Limited. Manoharan holds a bachelors degree
in commerce from Pachaiyappa’s College, Madras University, a masters degree in commerce from Sri Venkateswara University, Andhra Pradesh, and is a law graduate from Madras Law College, Madras University
C. P. Gurnani
Gurnani (CP to his colleagues) is the CEO of Mahindra Satyam. Prior to moving to Mahindra Satyam, CP headed Tech Mahindra’s Global Operations, Sales and Marketing functions, and led the development of Tech Mahindra’s Competency & Solution units. CP’s inimitable style of leadership combined with his sharp focus on customer experience has helped Tech Mahindra to emerge as one of the leading providers of IT Services and Telecom Solutions to the global telecom ecosystem. CP has extensive experience in building international business, start-ups, turnarounds, joint ventures and mergers & acquisitions. In a career spanning over 28 years, he has held several leading positions with HCL Hewlett Packard Limited, Perot Systems (India) Limited and HCL Corporation Ltd. Prior to joining Tech Mahindra, CP was the Chief Operating Officer and a co-founder of Perot Systems (India) Limited, initially set up as HCL Perot Systems. At HCL Perot Systems, CP orchestrated the HCL Corporation and Perot Systems joint venture from its inception to making it one of India’s top IT services companies. CP received a chemical engineering degree from the National Institute of Technology, Rourkela. He serves on the boards of Canvas, Tech Mahindra (Thailand) Limited, Tech Mahindra (Beijing) IT Services Limited, Mahindra Log soft and Tennenbaum Institute in Georgia Institute of Technology among others.
CP takes keen interest in community work and was nominated by Ernst & Young for the Entrepreneur of the Year Award in 2007.
Ulhas N. Yargop Ulhas N Yargop, 55, is the President, IT Sector and Member, Group Management Board of Mahindra & Mahindra Ltd. Yargop joined Mahindra & Mahindra Ltd in 1992 and has worked as General Manager — Corporate Planning, General Manager — Product Planning, General Manager, MahindraFord Project, and as Treasurer of Mahindra & Mahindra Ltd. He was appointed as President, IT Sector in 1999. The IT Sector includes Tech Mahindra (focused on the telecom vertical) and Bristlecone (focused on supply chain consulting). Yargop is also responsible for Mahindra SIRF, the corporate venture capital activity of the Mahindra Group. He has previously worked with GKN Automotive Inc., USA as Director of Finance and later with GKN Invel Transmissions Ltd., New Delhi as General Manager — Commercial. He also worked with The Standard Batteries Ltd., Mumbai as Vice President — Industrial. Yargop received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Madras and a master’s in business administration degree from the Harvard Business School. In addition to his responsibilities at Mahindra & Mahindra Ltd, Yargop’s principal directorships include his serving as a director on the boards of directors of Tech Mahindra Limited, Venturbay Consultants Private Limited, Mahindra
Logisoft Business Solutions Limited, Canvas Technologies Limited, Mahindra & Mahindra Contech Limited, Mahindra Engineering Services Limited, Bristlecone India Limited, Mahindra-BT Investment Company (Mauritius) limited, Mahindra Telecommunications Investment Private Limited, Officemartindia.com Limited, AT&T Global Network Services India Private Limited, Tech Mahindra (Americas) Inc, Tech Mahindra GmbH, Bristlecone Limited Cayman Islands, Bristlecone Inc.
M Damodaran M Damodaran, IAS (Retired), is currently practicing as an independent consultant in diverse areas of management. He has over 30 years of experience in financial services and public sector enterprises and has served as the former Chairman of the Securities and Exchange Board of India (SEBI), Chairman and Managing Director of Industrial Development Bank of India (IDBI) and as Chairman of the Unit Trust of India (UTI). He has also held various positions in the Ministry of Finance, the Ministry of Information & Broadcasting and the Ministry of Commerce.
Gautam S Kaji Gautam S Kaji is the former Managing Director for operations of the World Bank with responsibility for Africa, East Asia and the Pacific and South Asia. He also led the World Bank's finance and private sector development programs and served as chair of the World Bank's operations committee, which reviews all projects put forward for World Bank support. Prior to this, he worked in a commercial bank. He is currently Chairman of Centennial Group - a Washington-based Policy and Strategic advisory firm and their non-profit initiative `The Emerging Markets Forum
Executive management team
ď ś
Vineet Nayyar Chairman Vineet Nayyar is the Chairman of Mahindra Satyam. An accomplished leader, Vineet has led several organizations across industries creating high performing teams and successful businesses. He has a rich and varied experience having worked with the Government, international multilateral agencies and the corporate sector both public and private in a career that spans over 40 years.
C P Gurnani Chief Executive Officer Gurnani (CP to his colleagues) is the CEO of Mahindra Satyam. Prior to moving to Mahindra Satyam, CP headed Tech Mahindra’s Global Operations, Sales and Marketing functions, and led the development of Tech Mahindra’s Competency & Solution units. CP’s inimitable style of leadership combined with his sharp focus on customer experience has helped Tech Mahindra to emerge as one of the leading providers of IT Services and Telecom Solutions to the global telecom ecosystem.
A. S. Murty Chief Technology Officer (CTO) A.S. Murty (also known as ASM), in his current role as Chief Technology Officer (CTO), is responsible for technology competency and innovation, as well as the creation of technology assets and IP, especially for Enterprise Business Services and new technology areas.
Atul Kunwar President - MEA, Europe, India, APAC Previously, and Atul was leading Tech Mahindra’s Asia-Pacific, R&D services (to Telecom equipment providers), policy Networks (security products division) businesses and M&A portfolio. In an impressive career spanning over two decades in the IT/BPO services, Telecom & Technology business domains, Atul has successfully steered companies/businesses & multi-cultural teams through startup, growth, turnaround, mergers & restructuring phases at leading organizations such as 3Com, Bharti BT Internet, eFunds, HCL, Syntel, and TransWorks (Aditya Birla group).
Vijayanand Vadrevu Senior Vice President - Strategic Initiatives In his new role, Vijay will be assisting the CEO, in providing leadership on “Strategic Initiatives” to Mahindra Satyam, and will play a key role in scripting the growth plans of the organization. Vijay has a vast experience in IT services industry with over 17.5 years with Wipro Technologies. For the last 3 years, he was working as Vice President and Head for Life Sciences Vertical solutions, responsible for Strategy, Sales and Delivery and was instrumental in shaping it as one of the fastest growing Verticals.
Dilip Jha Senior Vice President, Business Head – Middle East, Africa & India Dilip Jha has over two decades of experience in starting and leading the Indian operations of several high technology companies. He has a B. Tech degree in Electrical Engineering from the IIT Kanpur and an MBA from IIM Calcutta.
Hari Thalapalli Chief Marketing Officer (CMO) and Chief People Officer (CPO) Hari Thalapalli serves as the Chief Marketing Officer (CMO) and Chief People Officer (CPO) of Mahindra Satyam. He has over two decades of experience in the IT industry and has been with Mahindra Satyam for the past 11 years - playing vital roles in the organization’s growth and during its turbulent phase in the recent past. In his previous role as Head of Global Marketing and Communication, Thalapalli brought to fore his understanding of people behavior to drive innovation and visibility enhancing programs for the organization.
Padma Parthasarathy Head – Special Initiatives Padma Parthasarathy is responsible for special initiatives, especially related to the integration between Mahindra Satyam and Tech Mahindra. She has been managing a number of postacquisition activities at Mahindra Satyam, since May 2009.
Rakesh Soni Chief Operating Officer & Chief Delivery Officer - Manufacturing, Commercial & Services Rakesh Soni will head the delivery for the Manufacturing, BFSI, emerging verticals and strategic accounts for the Americas. He will also handle sales for these verticals on a At Tech Mahindra he was the COO and, was responsible for leading the operations and service delivery leading teams of software service delivery, technical support, administration, infrastructure and quality. Rakesh has successfully spearheaded several challenging projects within strict timelines and budgets.
S Durga Shankar Chief Financial Officer (CFO) S. Durgashankar (“Durga”), is a Chartered Accountant with over 25 years experience in various facets of Finance - as a Banker, Corporate Treasurer, Head of M&A and as Group CFO. Prior to M&M, Durga was with ICICI Ltd (erstwhile development financial institution) for a period of 13 years and was head of its Chennai Zonal operations.
Manish Mehta Chief Delivery Officer - Europe, APAC, MEA, India Manish Mehta is the Delivery Head for Europe, APAC, MEA and India regions in Mahindra Satyam. Previously, Manish was heading Mahindra Satyam’s SAP and Managed Testing practices. Manish propelled Mahindra Satyam’s SAP and testing practices into the global marketplace. The
top 5 global players by Forrester, and won Frost & Sullivan’s Competitive Strategy Leadership Award for Offshore Testing Market (2007).
Services
Bi & Pm Business value enhancement B2B / EDI Content, process, Ux management Digital convergence Infrastructure services Integrated engineering solutions Operations management Oracle solutions Product and application testing Product lifecycle management (PLM) Platform solutions SAP solutions Supplier relationship management
Satyam scam
•
•
•
• • •
NEW DELHI, Jan 9 (IPS) - India’s government, its corporate sector and its people are stunned after the founder-chairman of one of the country’s largest information technology (IT) services companies admitted to years of falsified profits and an audacious financial fraud worth 1.5 billion dollars. The founding promoter of Satyam Computer Services Limited, Ramalinga Raju, resigned as the company’s chairman on Wednesday, putting out a confessional statement admitting that roughly 1.5 billion US dollars (or the equivalent of 70 billion Indian rupees) of the firm’s past funds were "non-existent". What has shocked analysts is that the money, that is now supposed to be fictitious, had been recorded in Satyam’s balance sheets and books of account that had been audited by the internationally reputed firm of auditors, PriceWaterhouseCoopers. Raju, who is politically influential, disclosed details of the fraud in a resignation letter to the company’s board of directors forwarded to stock exchange authorities as well as the regulator of the country’s capital markets, the Securities and Exchange Board of India (SEBI). Of the revenue reported as of Sep.30, 2008, the letter said, almost 1.03 billion dollars, or 95 percent, never existed. SEBI’s chairman C.B. Bhave described the financial wrongdoing in Satyam as an event of "horrifying magnitude". The scam has dominated the India media and what is ironical is that the Indian word "Satyam" translates as "truth".
A most alarming aspect of the episode was that Raju acknowledged that his company’s financial records had been fudged and manipulated for the "last several years".
•
•
•
•
•
•
•
"It was like riding a tiger, not knowing how to get off without being eaten," wrote the disgraced Raju in his letter. While there were rumours that Raju had fled India, his lawyer has said he is in Hyderabad, the capital of the southern Indian state of Andhra Pradesh, where the Satyam is headquartered. On Wednesday, Raju’s announcement had knocked the company’s stock down a crippling 78 percent and sent the sensitive index of the stock exchange at Mumbai, India’s financial capital, plummeting by a substantial 7.3 percent. The share price came down further on Friday. This scandal came barely a week after the government in New Delhi announced an economic stimulus package to revive the markets that have been adversely impacted by the ongoing worldwide recession. Until recently, Satyam used to be India’s fourth-largest IT company, specializing in developing computer software and business process outsourcing. Satyam's stock is listed on the New York Stock Exchange, it had business operations in 66 countries and counted 185 companies in the Fortune 500 list as its clients and customers. "It’s a wake-up call for the Indian corporate sector," said Ashok Kumar Bhattacharya, national managing editor of Business Standard newspaper in an exclusive interview to IPS. "Companies have to stick to the rule-book," he added. Investors, along with Indian government agencies, are now demanding answers to why the value of their stock came down by more than 1.9 billion dollars in one day on account of a scandal that is being described as "India’s Enron" in reference to
•
•
•
•
•
•
the U.S. energy company that filed for bankruptcy in 2001, leaving 5,000 people jobless and eliminating one billion dollars in employee retirement funds. Many of Satyam’s 53,000 employees are expecting unemployment as the dimensions of the scandal unfold, investors withdraw and it is discovered how the company’s coffers are almost empty. The 1.5 billion dollar fraud outweighs the company’s entire salary bill for the last year of a little over one billion dollars. The downfall of Raju, a 54-year old software industry veteran, began nearly one month ago when Satyam attempted to acquire two companies controlled by his sons - Maytas (Satyam spelled backwards) Properties and Maytas Infra - for 1.6 billion dollars in order to compensate for the holes in his books of account. The deal was abandoned 12 hours after it was announced when investors objected, claiming it was an irresponsible misuse of funds and an instance of nepotism. The Maytas deals acted as a red flag for international investors, with a host of companies like Unpaid Systems of Britain accusing Satyam of fraud, forgery and breach of contract. Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its computer services for eight years citing a potential trail of corruption - data theft and bribery - that led to Raju. The last straw perhaps came on Tuesday when an Indian associate of Merrill Lynch terminated an agreement on grounds of "material accounting irregularities". Satyam’s worth estimated at seven billion dollars, barely six months ago, is now worth less than 330 million dollars. In an IPS interview, Arun Kumar, professor of economics at
•
•
•
•
•
•
•
New Delhi’s prestigious Jawaharlal Nehru University, said the so-called "independent" directors on the Satyam board were not truly independent and added that auditors often acted in collusion with corrupt company managers. "I’m not at all surprised that the auditors played along with the top management of this company and allowed executives to cook books of account," said Kumar who has authored a book on India’s illegal - or "black" - economy. "The government is not looking to take over the companies. The corporate world must respond to this," Kamal Nath, India’s industry and commerce minister was quoted as saying. "The government should only look at the regulatory part of it," he added. The government has stepped in to investigate all important directors and employees associated with Satyam who could be involved in the fraud. All those found guilty could face up to ten years in prison. The auditing licenses of the partners of PricewaterhouseCoopers could also be revoked. "The system has to be strong, but individuals make the system. The rules were in place but individuals broke these rules and threatened the system,’’ says Bhattacharya. Though Raju’s resignation letter attempts to accept personal responsibility for the misdemeanors, there is a view that many others were involved and complicit. Kumar said it was "near-impossible that those close to the inner workings of Satyam were completely unaware of what was going on". Whereas some argue that the Satyam scandal will not have a long-term negative impact on the working of India’s reputed information technology (IT) industry, others say it could negatively impact India’s booming IT services which chalked up
overall sales worth 52 billion dollars in 2007-2008. •
•
•
Anand Mahindra, vice chairman and managing director of M&M, a leading commercial vehicles manufacturing company, went on record stating: "This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular". He added that the "whole of Indian industry should not be tarred with the same brush". But other corporate managers see positive fallouts to the Satyam episode. ‘’After what happened there is bound to better selfregulation among Indian IT companies,’’ said Puneet Kumar, a top manager at WIPRO, a globally respected, Bangalore-based IT company. ‘’Satyam was an aberration,’’ Puneet Kumar said. ‘’The fact is that the IT industry thrives on good reputation and every major in the business lays great emphasis on maintaining global standards of corporate governance.’’
Satyam Scam a reflection on Services Business?
I am sure by now all of you know about the Satyam scam and how the companies management was involved in a massive $2 billion scam. But one of the most important thing which this complete scam has brought out is the dwindling margins on the IT Services Business. Satyam as per Raju only operated on a 3% margin. Now this 3% margin can be a reflection of the gross mis-management of Satyam or simply put bitter reality of the services business. Lets leave Infosys, Wipro & TCS aside as I believe that customers might be paying them a premium for who they are which is essentially translating to the high margin.
Satyam Scam - Separating truth from lies What is ‘known’ as of now is that over an extended period of time, the promoters decided to inflate the revenue and profit figures of Satyam. In the event, the company has a huge hole in its balance sheet, consisting of non-
existent assets and cash reserves that have been recorded and liabilities that are unrecorded. According to the ‘confessional’ statement of Mr. Raju, the balance sheet shortfall is more than Rs.7000 crore. Why did a leading company in one of India’s most successful industries of recent years need to inflate profits? After all, the revenues of India’s IT industry have grown at a scorching compound annual rate of almost 30 per cent in the past eight years, driven by exports. This is remarkable, assuming that revenue and profit inflation have not excessively overstated performance. With cheap skilled labour having shored up profits that were lightly taxed when compared with the norm, net profits must have been substantial and rising too. Why then did the fourth largest IT company choose to take the criminal route of falsifying accounts and indulging in fraud? One possible cause could be the desire to drive up stock values. The benefits derived by promoters from high stock values are obvious, allowing them to buy into real wealth outside the company and giving them the ‘invasion money’ to acquire large stakes in other firms. This tendency was epitomised by the benefits derived by America Online when it merged with Time Warner. Although the latter had more assets, revenues, and customers, AOL’s higher market capitalisation led to that company and its chairman, Steve Case, getting more out of the deal than did long-time giant Time Warner. There is some suspicion that Mr. Raju and his family may have sought similar benefits. The family chose to build its shareholding in Satyam Computer Services and shed it when required. For example, in year 2000 Satyam Computer merged with a related company, Satyam Enterprises. Raju’s cousin, C. Srinivasa Raju, who held 800,000 shares, or 19 per cent, in Satyam Enterprises, was reportedly allotted an equivalent number in Satyam Computer, leading to criticism that relative prices did not justify the 1:1 swap. But the original promoter’s share held by the Raju family and their subsequent acquisitions were not for keeping. Though the precise numbers quoted vary, according to observers the stake of the promoters fell sharply after 2001 when they held 25.60 per cent of equity in the company. This fell to 22.26 per cent by the end of March, 2002, 20.74 per cent in 2003, 17.35 per cent in 2004, 15.67 per cent in 2005, 14.02 per cent in 2006, 8.79 in 2007, 8.65 at the end of September 2008, and 5.13 per cent in January 2009 (Business Line, January 3, 2009). The most recent decline is attributed to the decision of lenders from whom the family had borrowed to sell the shares that were pledged with them. But the earlier declines must have been the result either of sale of shares by
promoters or of sale of new shares to investors. According to audited balance sheet figures (if they are to be trusted) available from the CMIE’s database, the paid-up equity in Satyam Computer Services rose from Rs. 56.24 crore in March 2000 to just Rs. 64.89 crore by March 2006 and further to Rs. 133.44 crore in March 2007. Overall, the number of shares held by the promoter group fell from 7.16 crore (22.8 per cent) to 5.8 crore (8.6 per cent) between
Satyam’s 7 steps to save employees »
I am at shock. Specially because Satyam employees with average salary of 70K per month are sure feeling helpless than I am at this time. Yet at the end of the day I think what can Satyam’s upcoming plan be? to increase the morale of it’s present employees and save them. Here are a few picks 1. Satyam and PwC may form a email marketing group called Satyam Pwc Advertisement and Marketing (SPAM) to pursue lenders through advanced email tactics in lending money. 2. Raju might provide free ebook version on budhdhism and spirituality to every employee through SAAS (Satyam Aesthetics and Advanced Spiritualism) model (who said? Dalai Lama??) 3. Satyam might ask employees to jointly produce films under bollywood banner to better the chances through box office, some films can be “Raju Bawra”, “amdani athanni, kharcha rupaya”, “EMI2 - kab du? kaise du?”, “satyam, shivam, scandalam”, “MAYTAS aapke hain kaun?” “Raaz 3 Scandal continues..” come on…give me some titles.. 4. Satyam might start body shopping employees with or can even create a career site for satyam employees like “topsatyamemployees.com” or “satyamcvs.com” or “satyamcareers.com” 5. Satyam might form a new ally with PwC and form SCAM (Satyam Creative Accounts Management) and might go for auditing other big giants of India, their average charge for audit will be 4.3 crores 6. PwC might create an awareness program to save its client Satyam (on demand by Raju). The campaign might be called “PWC - Please Wear Clothes”, which additionally means “just clothes” are allowed, employees should sale off their new SX4, Imate, Apple Mac and Handycams.. 7. SATYAM might plea the government for saving them and defining the truth behind SATYAM as an acronym of “Some Accounts Tactically Yucked for Advanced Management”
No advance tax paid by Satyam in FY09 Satyam Computer has not paid a single rupee as advance tax in the first three quarters of the current fiscal, though the IT company paid Rs 25 cr as fringe benefit tax (FBT) till December 15. However, most of its IT peers, including Infosys Technologies, Tata Consultancy Services (TCS), Wipro, Cognizant Technology Solution, Patni Computer Systems, Veritas Software, MphasiS, iGate Global Solutions, Cisco Systems and MindTree, have paid advance tax this fiscal, sources in finance ministry told SundayET. As payment of advance tax is always considered an indicator of profitability of a company, Satyam’s non-payment of advance tax could also imply that trouble had been brewing for a long time. Though IT companies get some tax benefits under Section 10 (A) of the I-T Act, Satyam’s zero payment of advance tax even as smaller companies coughed up the tax, has already raised questions in North Block. Various government agencies, including Central Board of Direct Taxes (CBDT), have begun investigations into the Hyderabad-based company after its chairman and founder Ramalinga Raju stepped down after confessing a Rs 7,000-cr fraud. A source in the finance ministry has, however, said advance tax payment should be seen along with the company’s FBT and tax deducted at source (TDS) figures. “But yes, despite the slowdown, most IT companies have paid advance tax this fiscal whereas it’s zero in case of Satyam,” he added. Significantly, Satyam paid a meagre Rs 5.4 cr as advance tax last fiscal. Advance tax is paid four times a year and is paid on the basis of a company’s projection of annual net profit. SundayET did not receive Satyam’s TDS figures for the current fiscal. Satyam’s FBT payment in Q3 too was below expectation of taxmen as it paid just Rs 5.5 cr against Rs 25 cr during the same period last fiscal, indicating that the company began to cut cost on fringe benefits extended to its employees. The total FBT collection as on December 17, 2008, stood at Rs 5,667 cr, registering a 43% rise from the same period in FY07, according to data available with CBDT. added to News & Media by Vaibhav Sanghrajka tags:cisco systems, cognizant technology solution, finance ministry, igate global solutions, infosys technologies, mindtree, patni computer systems, slowdown, tata consultancy services
Satyam Scam: A Shame for the nation The 7000 Crore Satyam Fraud has not only tarnished the very meaning of Satyam,the first of the three words describing GOD, himself (Satyam,Shivam ,Sundram) but has crashed and blasted all that stood in the name of truth, atleast in the eyes of the common man. It may have not killed any,but its impact is akin to the aftermath of the Mumbai blasts,or even worst!The Mumbai Blasts left behind a perpetual scare in every mans mind,and this astonishing scandal besides leaving thousands jobless,and millions paupers,has created a great financial insecurity amongst the masses. One has become accustomed over the last decade to scams running into hundreds and thousands of crores,but this is the Father of all Frauds, which has left the world numb,dumb and scaringly shocked!!!!!!! If the fraudulent accounts of such mega organizations can skip the vigilant hawky eyes of the financial auditing wizards,then no accounting or auditing system of the country of the world is above suspicion! Its not only the investors or the employees and others related to Satyam,who have been affected,but this financial blast has created an undesirable state of disbelief in the complete corporate world,and a distrust in the investment system and stock market,that will prove to be highly detrimental for the economical growth of the country. Besides taking all possible steps to revive the firm,and to gain back the trust of all concerned,the culprits should be given exemplary punishments which may prove to be great deterrents for all in future,to even dare to convert the Satyas of the financial and corporate world to Mithias!!!!
Raju spends time in jail reading books, newspapers Disgraced former chairman of Satyam Computers, B Ramalinga Raju spent his fourth day in the Chanchalguda Central prison reading books, news magazines and newspapers. Raju has been shifted from the regular admission block to the nearby barrack where he is leading a quite life and is remained to himself, a senior prison official told PTI. Besides his routine activities in the jail, Raju is also going for a stroll in the evening hours, the official said. As per the magistrate’s directions, Raju’s health is also being checked on a routine basis, he said.
Raju, who confessed to fudging Satyam’s accounts to the tune of Rs 7,800 crores, was sent to judicial custody on January 10 and is now spending most of his time in the jail by reading books and is keeping himself abreast with latest developments through newspapers.
Effect of satyam scam on market
Although several companies are trying to have a bite into Satyam Computers, according to Gartner study, the company is likely to exist in its current form. It is expected to discontinue some of its businesses, service lines or cease to exist in certain geographies by 2010. The study indicated that even the name Satyam may not be around by that time, as the company is expected to undergo a complete change, in ownership and organizationally. Satyam’s ability to sign on new clients during 2009 has significantly diminished, says the study. ‘‘In addition, it will be challenged to invest in client engagements, staff developments or R&D, all critical elements for IT services,’’ said Gartner’s V-P for research, Frances Karamouzis.
Ex-Satyam Director Resigns From Sasken Board Serial entrepreneur and NewPath Ventures co-founder Vinod K Dham resigned from the board of Sasken Communications as an independent director, a top official of the communications solutions provider said on Monday. “Yes, Dham has resigned as a director of the company from the board on January 17,” Sasken chairman and managing director Rajiv C. Mody told IANS but declined to elaborate. “We will inform you later, as we are busy with investors and analysts in a conference call on our third quarter performance,” Mody added.
The US-based Dham resigned from the board of the fraud-tainted Satyam Computer Services Dec 29 as an independent director over the IT bellwether’s aborted bid to acquire the two Maytas realty firms, run by the two sons of its disgraced founder and former chairman B. Ramalinga Raju.
Y S Reddy Denies His Support For Raju The political blame game around Ramalinga Raju, the founder of Satyam Computer Services and main accused over the Satyam scam has begun. Andhra Pradesh Chief Minister Y S Rajashekhara Reddy on Monday dismissed charges that he was responsible for the rise of Satyam’s tainted founder Ramalinga Raju and instead sought to put the blame on his predecessor and TDP leader N Chandrababu Naidu. “By the time I became the Chief Minister, Raju had already risen to very high level. I am not responsible. In no way, he needed my promotion. All the promotion was already done,” he told reporters.
Post Satyam Scam, Indian Students Shun IT Companies The Satyam effect has starting spreading its tentacles, and has proved to have a negative impact on the Engineering students. IT (Information Technology) which used to be the Mecca of all jobs is now the outcaste.Students are prefering to take jobs in their core branches rather than move to the dwindling IT sector. “I was offered a job as trainee employee at Satyam last year. But after the fiasco has happened at Satyam, I have changed my mind to get suitable job in other firm,” said Divyadeep Goyal, a student Mechanical Engineering student of University Institute of Engineering and Technology (UEIT), who was offered an annual package of Rs 3.25 lakh in Satyam. Echoing similar views, Sumant, another final-year student of the same college, said, “The impact of Satyam fraud has been so damaging that we now do not have any intention to join the IT company. Rather we will look for job in other sectors.” The total number of engineering students placed by Satyam from this region was not available but some colleges have shared their placement figures. Almost 80 students from the Institute of Engineering and Technology were selected by Satyam last year, while 13 students were placed from Punjab Engineering College (PEC) and seven were from UIET. Students were offered an annual package between Rs 3 lakh and 3.5 lakh.
Satyam May Get Financial Support From Government The Government certainly can not remain aloof and allow Satyam to die off especially when it provides occupation to 53,000 odd people and indirectly supports more than a million Indians. While it is debatable that whether the tax payers money be used to bail out a company which deliberately got involved in a scam. The troubled Satyam Computer Services, facing a liquidity challenge, may get financial support from the government, which is willing to New Satyam board members consider “all aspects” of helping the crisis-ridden company, Commerce and Industry Minister Kamal Nath said on Monday. Since it was a question of saving jobs and an international Indian brand, the government would consider all the proposals from the newly-constituted board, Nath said. When asked whether the government could extend even financial help to Satyam, Nath said, “Of course. There are many jobs at stake and institutional stakes.”
The Satyam Scam Has Dented India Inc.’s Image Abroad : Govt Huge losses to investors aside, the Satyam scandal has caused “serious damage” to India Inc’s reputation as well as the country’s regulatory authorities outside, the government has said. Seeking to dismantle the existing board and to nominate ten new directors at the beleaguered IT firm, the Centre has said in its petition before the Company Law Board that the “interests of the company will not be safe in the hands of the present board of directors.” “The admission of fraudulent manipulation of the financial affairs has created an adverse impression in the minds of the trade, business and industry across the world.” “This has also resulted in serious damage to the reputation of Indian Corporate sector and the regulatory mechanism in the eyes of the world,” the government said. Allowing the government to nominate 10 new directors, the CLB said in its order that the “present board of directors stands suspended with immediate effect” and the new board should meet within seven days of its constitution and “take necessary action to put the company back on the road.” It also asked the new board to submit periodical reports to the Centre and the CLB on the company’s state of affairs.
The CLB also observed that the residual board members at the company after a string of resignations are those “who were also party to the impugned decision to invest substantial funds in the companies related to Raju, the decision of which was the starting point of the downward trend in the fortunes of the company.” Besides Satyam, Ramalinga Raju and brother Rama Raju, the government in its petition has also named the company’s CA and auditor Price Waterhouse, Company Secretary as well as all the directors. This include also those independent directors who have resigned — Vinod Dham, Rammohan Rao, K G Palepu and Mangalam Srinivasan, as well as former Cabinet Secretary T R Prasad, V S Raju and interim CEO Ram Mynampati. The CLB has also asked all the respondents to submit their replies to the petition by February 20. The CLB had ordered the Central Government to immediately constitute a fresh board of the company with not more than ten “persons of eminence as directors.” “The Central Government may also designate one of them as the Chairman of the Board… The said Board will continue till further orders.” The government said in its petition that Satyam has about three lakh shareholders, over 53,000 employees and has clients in over 60 countries, besides India. It has received a number of awards for best corporate governance.
Indian Firms Reviewing Fraud Control Mechanism In the face of the Satyam scam and its deadly repurcussions, Indian firms are looking into methods to avoid scenarios of such scams within their companies. Indian companies have started to review and document their risk management policies and practices to check corporate fraud in the wake of the Rs.70 bn Satyam Computer Services scam, a survey by an industry lobby says.
A quick analysis by the Associated Chambers of Commerce and Industry of India (Assocham) with feedback of over 400 leading corporates, said that to deter possible corporate frauds, companies have commenced re-codifying their risk management policies. However, about 85 percent of the respondents said although Clause 49 of the market regulator’s Listing Agreement clearly states that the management and the board of directors must accept responsibility for not issuing accurate financial statements, most officials at this level managed to get off the hook even if found guilty. statements, most officials at this level managed to get off the hook even if found guilty. On the other hand, about 80 percent of respondents argued that putting these programmes and controls in place will help organisations to set the tone of zero-tolerance to fraud and create a mechanism for employees to report wrongdoing to the appropriate authorities.
ICICI And SBI Banks Submit Details Of Satyam Exposure To RBI As part of its probe on scam-tainted Satyam, RBI today collected particulars of transactions that various banks including SBI and ICICI Bank had with the IT company. “We have submitted the details of our business deals with Satyam to the Reserve bank. In the wake of these developments (in Satyam), banks are bound to be extra cautious while lending to such corporates,” SBI’s Chief Financial Officer Ashok Mukand told PTI here. When asked, Citibank declined to comment if the company was its client and whether the bank had given details to RBI. “We are unable to comment due to client confidentiality,” a spokesperson of the bank said.
The Satyam Effect : US Listed Indian Stocks Take A Beating The Satyam scam effect has started its infectious presence. U.S. listed stocks of other Indian companies have started taken a severe beating.
ch
Indian stocks listed on the American bourses suffered a loss of close to $ 2 billion in a week, following unfolding of India’s biggest Despite, a halt in trading in Satyam Computer from Wednesday, the rest of the 15 Indian stocks on US bourses bore the brunt of the negative market sentiment and witnessed a fall of $1.94 billion in their combined market capitalisation in the week ending January 9. Meanwhile, the Hyderabad-based company, which traded on the first two day of the week, added $ 2.66 billion on the speculations that some rival IT firm might acquire it. The combined market-cap of all firms excludes Satyam’s valuations for the two days.
What is the effect of Satyam Fraud on Indian BPO Sector? Ofocurse it will affect Indian Market a little bit. But i don’t think any other country has such a large pool of trained resource as India has. China, Brazil and Pakistan are some choices, but none of them can compete India for their cheap and trained labour. Also scandals in one or two companies doesn’t mean that whole country is corrupt. So i don’t think its gonna effect that much. I do not believe this fiasco will have longer-term ramifications for the Indian services sector, as long as Satyam’s creative accounting turns out to be an isolated incident and not a more pervasive acrossrace the sector. companies areproblem in the to takeover satyam computer
Tech Mahindra's bid for India's Satyam approved India's Company Law Board on Thursday approved a bid from mid-sized outsourcing firm Tech Mahindra to take over graft-tainted Satyam Computer Services, an official said. • Venturebay, a subsidiary of Tech Mahindra, will pay just over 350 million dollars for a preferential allotment of new shares in Satyam, to pick up a 31-percent stake in the company by April 21. • It will also make a public open offer for a further 20-percent stake at a cost of over 225 million dollars to gain a majority holding in Satyam. • "I accept the recommendation, with the hope that by adopting best corporate governance practices, Venturebay would over the years make
Satyam regain its glory in real terms," the board's chairman S. Balasubramanian said in a statement. • Tech Mahindra won the bidding on Monday for Satyam, which has been struggling since its founder confessed to falsifying its accounts in India's biggest accounting scandal. • It acts as back office for some of the world's biggest companies such as Nestle SA, General Electric Co and General Motors Corp. • Raju, his brother and seven other people, including two Price Waterhouse auditors, are now in jail on charges of conspiracy, cheating, forgery and falsification of accounts.
Fortis also plans to invest an additional Rs 10 crore and increase its sake to 76% by the end of the year. •
•
•
Fortis Picks 56% Stake in Apollo RM Hospital - Fortis Healthcare has picked up 56% stake in the Bangalore-based Apollo RM Hospital, through one of its wholly owned subsidiaries, for an undisclosed amount. According to sources, Fortis has acquired a majority for around Rs 10 crore. Fortis also plans to invest an additional Rs 10 crore and increase its sake to 76% by the end of the year. The former owners two urologist Dr Mohan Keshavamurthy and Dr Lakshmi Narayana Raju will hold the remaining stake. Apollo RM, which started in 2007 as a franchisee of Apollo Hospital. The privately held hospital is now being rechristened as Fortis Hospital. (The Economic Times) Bhushan Steel to Acquire Controlling Stake in Orissa Sponge Iron and Steel - Delhi-based Bhushan Steel is close to picking a controlling stake in Orissa Sponge Iron & Steel. Sources suggest that Bhushan Steel is going to acquire the entire 34% stake held by the existing promoter, Prashant Mohanty in Orissa Sponge. Bhushan Steel has already hiked its holding in Orissa Sponge to 14.85% by acquiring a large part of 12.11% owned by Chandra family of Unitech in Orissa Sponge. If Bhushan Steel buys out Mihanty, its stake in Orissa Sponge will go up to 48.85% triggering a mandatory open offer to purchase another 20% from other shareholders, as per the takeover norms. (The Economic Times) The Hinduja Group Joins Race to Acquire Satyam - The Hinduja group has joined the race to acquire the fraud-hit Satyam Computer
•
•
•
•
Services. The group has sent a formal communication to the investment bankers of Satyam expressing its interest in Hyderabad based software exporter. Hinduja Global Solutions, the new industry arm of the Hinduja Group, has $130 million of cash in books to mount the takeover bid. The promoters of the Hinduja Group have promised to contribute additional funds if the group makes the bid. The group is already in discussions with its bankers to raise additional funds if required. (The Economic Times) Bombay HC appoints Deloitte and Wipro as auditors in FT- NSE Case - The Bombay High Court has appointed Deloitte Haskins & Sells and Deloitte to conduct a systems audit of Financial Technologies’ (FT) front-end trading solution (CTCL). The NSE had put the exchange solutions provider on a watch list in October 2008 due to alleged flaws in the software, following which FT dragged NSE to court. Before undertaking the audit, the auditors will decide on the reference terms and send a notice asking both FT and NSE to file their submissions and objections. Both parties will share the fees of the third-party auditors, in equal measure. (The Economic Times) Spice Corp to Acquire Stake in Cellucom - The BK Modi group promoted Spice Corp is in talks with Dubai based mobile retailer Cellucom to acquire stake in its Indian mobile retail chain. Cellucom, which has about 120 mobile retail stores in India, has decided to dilute its stake in its Indian retail arm. Last month, RP Goenka group had sold off its 50% stake in the erstwhile joint venture to Cellucom. A buyout of stake would help Spice Corp’s mobile retail business, Hotspot Retail to expand its presence across India with an addition of 120 stores. (The Economic Times) Fidelity Increases Stake in Satyam to 6.79% - Fidelity International (FIL Asia Services Pty Ltd) has purchased 3.62% shares of Satyam Computer Services, thereby raising its stake in the fraud hit company to 6.79%. The open market purchase was done by FIL and its direct and indirect subsidiaries. This move makes FIL, which earlier held 3.17 per cent stake, the second-largest stakeholder in Satyam after Larsen & Toubro (L&T), which currently has a 12.04 per cent stake in the IT company. (Business Standard) Biba Plans to Invest Rs 40 Crore to Increase Store Network Mumbai-based retailer Biba Apparels plans to increase its store network to over 100 in the next two years by investing Rs 40 crore. The stores will be set up in the metros, Tier II and Tier III towns. The stores will be spread across 1,200 sq ft and would be self-managed. The company intends to set up a minimum of 30 stores in 2009-2010, with each store entailing an investment of Rs 40-60 lakh and spread across 1,000 sq ft each. (DNA Money)
•
•
•
•
•
Take Solutions- Four Soft Merger Called Off - The proposed merger between the Chennai-based Take Solutions and the Hyderabad-based Four Soft has been called off following differences on post merger issues, including management. Both are providers of software products and solutions in the supply chain management space. The merger was proposed in March last year. The board of Take Solutions felt that it would not be correct to ahead with the merger, considering the current economic conditions. The two companies were also unable to achieve a consensus on the possible management post merger. (Business Line) Sistema Shyam Eyes More Acquisitions in CDMA Business - The latest entrant in mobile space, Sistema Shyam Teleservices is looking at more acquisitions to get faster access to the Indian markets. The company, which was among the operators to get new licences early 2008, is aiming to offer CDMA-based mobile services across the country before the middle of 2010. Sistema has already launched services in Rajasthan and is planning to begin in Tamil Nadu and Kerala by March. The company hopes to roll out services in at least 10 circles by this year-end by launching services in one or two circles each month. Sistema has got agreements with infrastructure companies to share towers. About 70-80% of the towers on Sistema’s network are currently shared. SSTL is also plans to give outsourcing deals for managing its IT and call centre functions going forward. (Business Line) Sutter Health to Pick Stake in Jaipur Healthcare City - Multi-billion dollar US-based not-for-profit healthcare organisation, Sutter Health is planning to pick up a stake in the Rs 200 crore healthcare city being set up by Narayana Hrudayalaya in Jaipur. Narayana Hrudayalaya is the renowned cardiac care hospital in India started by cardiac surgeon Devi Shetty and is setting up a chain of healthcare centres across many cities in India called ‘Health City’. According to sources, the deal for Sutter Health picking a stake in the Jaipur project is expected to be finalised by the end of net month. (Business Standard) Goldstone Infratech Board Approves - Hyderabad-based telecommunications equipment company, Goldstone Infratech Limited (formerly Goldstone Teleservices Limited), is planning to merge Newtech Stewing Engineering Limited, Shree Shree Telecom Private Limited and Sun Plast O Met Limited with itself. A proposal to this effect has been approved by the company’s board of directors in the meeting held on January 29. (Business Standard) IOB Gets RBI Approval For Acquiring Shree Suvarna Sahakari Bank - Indian Overseas Bank has got RBI's nod to go ahead with the acquisition of Pune-based Shree Suvarna Sahakari Bank. The due
diligence report for the same will be prepared by the first week of February. (The Economic Times)
IBM leads race to buy Satyam
New Delhi: Global IT giant IBM is learned to be leading the list of prospective buyers of beleaguered Satyam Computer Services. If the plan fructifies, IBM would become the largest IT services player in India with a combined employee strength of over 125,000 people, reported Business Standard. • According to sources close to the development, IBM officials has begun •
• discussions with Satyam board and expressed its desire to acquire a majority stake in the company. Moreover, a team of investment bankers and lawyers from the U.S. and Europe has been brought in to assess the size of the deal and the risks associated with it. It is also believed that IBM has conducted an initial due diligence on some of Satyam's major customers.
•
•
• •
• • •
Making easy entry for foreign players, Minister of Corporate Affairs P C Gupta had said a week ago that open bids would not be restricted to Indian players. IBM was named one of the hostile bidders for Satyam at the company's meeting in the last December. Apart from IBM, other prominent companies in the race are Larsen & Toubro (L&T), which owns 12 per cent in Satyam, and B K Modi-owned Spice group. The government-nominated board is expected to invite bids for a 31 per cent stake in the company, but is likely to assure the successful bidder 51 per cent even if it fails to get the additional mandatory 20 per cent from the open offer. Analysts foresee that if IBM can buy Satyam, that can give IBM the leverage to compete with Indian IT service providers as Satyam has a low-cost structure. IBM entered the bidding process last month through a law firm, which is a common practice in the West, but neither denied nor confirmed its interest in acquiring Satyam. Satyam currently faces 13 class action suits by holders of the company’s American Depository Receipts in the US, after Satyam founder Ramalinga Raju confessed to a large-scale accounting fraud on January 7. Upaid, a mobile payment specialist, has also filed a suit claiming damages of $1 billion. An investment banker close to the deal said IBM was a big name and could, therefore, be vulnerable to more lawsuits. IBM’s exit leaves the field open for engineering giant Larsen & Toubro, which owns 12 per cent in Satyam, Tech Mahindra, Cognizant Technology and private equity firm Wilbur L Ross. Meanwhile, Satyam’s government-appointed board has extended the deadline for submitting the technical and financial bids to April 13, from April 9, after L&T and Tech Mahindra had sought additional information to enable them to prepare the bids.
• IBM is understood to have conducted due diligence on some of Satyam’s major customers and was considered a good fit for the Indian company, principally because of its brand-name and overlap in service offerings. • Satyam’s low-cost structure, it was said, could have given IBM the leverage to take on Indian IT service providers. • In its annual report filed with the New York Stock Exchange in February 2009, IBM had named Satyam, along with Infosys and Wipro, as its main competitors. • At Satyam’s board meeting on December 16, Ramalinga Raju had cited a hostile takeover bid by IBM as a reason for proposing that Rs 8,000 crore of cash be transferred to promoter-owned companies Maytas Properties and Maytas Infrastructure. It was strong shareholder opposition to these deals that precipitated Satyam’s crisis. • IBM joins three other bidders that pulled out of the race. One was Phaneesh Murthy-promoted iGate, which participated in the first round of bidding, but backed out from completing the second round. Earlier, the Hindujas group had decided to opt out. The B K Modi-owned Spice group, which completed the second round of bidding, also withdrew for “lack of transparency”. • The Spice group now maintains it could re-enter the bidding if its conditions for an “open auction and transparent process” are met. It has written another letter to S P Bharucha, former Chief Justice of India who is currently monitoring the bidding process, seeking an open auction instead of tenders through sealed covers, besides requesting that the identities of all the shortlisted bidders be revealed. • The Satyam stock rose 13.6 per cent on the Bombay Stock Exchange, to close at Rs 45.15.
Satyam jumps 7 percent on merger talks; HCL, Tech Mahindra lead race • Hyderabad - Shares of beleaguered technology outsourcer Satyam Computer Services closed more than 7 percent up on Tuesday on reports that the firm was mulling a possible all-share merger move or even a takeover bid if the right suitor comes by.
• Satyam closed 7.31 percent up at Rs.179.10 at the Bombay Stock Exchange on rumors that HCL Technologies and Tech Mahindra were frontrunners in the race to buy India's fourth largest software services firm. • While HCL Technologies has been pitted as the best bet to buy Satyam, financial daily, The Economic Times reported Tuesday, citing an unnamed source, that Tech Mahindra, a leading IT services and solutions provider to the telecom industry and a unit of tractor and utility vehicle maker Mahindra & Mahindra, had approached Satyam's top brass and is seeking for a deal that could involve gaining control of a combined entity. • All the three companies, however, have rubbished the reports, saying they were market speculations. • A Satyam official, on conditions of anonymity, said one should not read too much into these reports till Satyam makes any announcement following its board meeting scheduled for January 10. • However, market analysts said that if technology firms like HCL Technologies or Tech Mahindra were to forge a deal, it would be a cashless merger involving "some stock swap element" as both the suitors have low cash reserves
TECH MAHINDRA TAKOVER SATYAM COMPUTER •
•
• •
•
•
•
•
•
Hyderabad, 14 Apr. Tech Mahindra Ltd. Placed the highest bid to acquire Satyam Computer Services Ltd. On 13 April 2009. This is just over four months after the massive accounting scandal was made public when the founder, Ramalinga Raju, confessed to inflating the books to over $1 billion above their worth. The takeover bid is only a month after Satyam announced it was up for sale. Tech Mahindra bid Rs 58 per share, above what Larsen & Toubro and billionaire tycoon Wilbur Ross offered. Tech Mahindra will own 31% of the IT mammoth at a cost of Rs1,757 crore, or slightly more than US $350 million. “It looks like Mahindra got a bargain considering the firm is worth a reported $2.1 billion. Who knows what the real value is, but it’s surely more than Rs 1,757 crore for almost a third ofthe firm,” commented Francesco Gopalakrishnan, EconomyWatch correspondent. “But then again, with the public’s suspicions up about accounting and auditing mishaps in Indian IT firms, they would have to get a deal to take over this scarred firm,” he added. “It’ll be a long, hard, road to build back confidence and trust.” When the Satyam scandal hit the presses in early January this year, rumors and suspicions about India’s IT Industry spread like wildfire. “I didn’t think I could get any more business for a long, long time,” lamented Ishan Singh, the owner of a small business process outsourcing (BPO) firm in Hyderabad. Tech Mahindra plans to extend its ownership up to 51% by purchasing an additional 20% at the same value. This brings Satyam’s valuation in Mahindra’s eyes to $1.1 billion. Tech Mahindra bid 20% more than the next-highest bidder and more than double the lowest bidder. Satyam has offices in a dozen countries and employs 40,000. It has more than 650 clients around the world, and 185 of them are Fortune 500 corporations. Tech Mahindra is an Indian conglomerate famous for its SUVs, tractors, and financial services. This foray into IT and outsourcing demonstratesthe firm’s eagerness to diversify and expand.
•
• •
• •
•
•
• •
• • • •
•
During a news conference on Monday, Tech Mahindra Chairman Anand Mahindra explained the synergy the two firms could create, “Both companies can benefit from each other,” he said. “Satyam provides a partner which is almost completely complimentary,” agreed Vineet Nayyar, vice chairman of Tech Mahindra. Tech Mahindra was comfortable placing such a high bid in part because it and Satyam have almost no overlap. The bulk of Tech Mahindra’s software business is in telecommunications, a sector Satyam has largely kept out of. Furthermore, in excess of 70% of Satyam’s business is in the US, providing additional diversification for Tech Mahindra. Whenever mergers or acquisitions are made, job cuts will occur. And considering Satyam’s profit margins are below 3%, Tech Mahindra intends on even more cuts to increase profits. But some are skeptical considering the lack of common ground the firms share. “There doesn’t seem to be any common thread of synergy,” said Edelweiss Securities analyst Viju George. However, the CEO of Satyam, A. S. Murty, was certainly thankful for this renewal, “I would like to compliment each of the Satyamites and their families for standing together and with unflinched support, taking care of all our deliverables to our customers…We welcome the change and we make sure that all our stakeholders are completely delighted.” Tech Mahindra, the successful buyer of Satyam, has asked European and US competition authorities to approve the takeover. Sources told the Wall Street Journal that Tech Mahindra filed for regulator approval in Europe on Monday and would do the same for US regulators on Tuesday. Four Tech Mahindra executives, including MD Vineet Nayyar, were invited to attend a Satyam board meeting yesterday - the four are expected to join the board as the deal closes. The board said Satyam will keep its existing leaders, and for now will continue to operate as a standalone business. Nayyar said Tech Mahindra had been impressed by Satyam's management and staff, and had complete confidence in their ability to restore the company's fortunes. Tech Mahindra is a telecoms specialist and is looking to Satyam to spread its business into new markets. But the firm admitted its immediate business was to retain worried customers and win back business lost as a result of the recent crisis. Satyam's future was put into doubt when founder Ramalinga Raju admitted inflating company profits by $1bn. He remains on remand along with his brother and two PriceWaterhouse auditors.
• Tech Mahindra has also put cash into an escrow account to fund the buy. • Dutch regulators have approved Satyam's request to be delisted from NYSE Euronext. India Economy: Tech Mahindra wins bid to take over Satyam Computers
• New Delhi - Tech Mahindra Ltd, the technology arm of India's Mahindra Group, successfully bid for controlling equity in defrauded information
•
•
•
• •
•
•
•
• • •
technology firm Satyam Computer Services Ltd, Satyam's board announced Monday. Tech Mahindra outbid engineering major Larsen and Toubro Ltd, which already owns 12 per cent equity in Satyam, and Nasdaq-listed technology company Cognizant, which was backed by US-based private equity investor Wilbur Ross, Satyam's board of directors announced at a press briefing in Mumbai. The board of directors, appointed by the government after company owner Ramalinga Raju admitted to fraudulent accounting of 1 billion dollars in January, said the acceptance of Tech Mahindra's bid was subject to approval by India's Company Law Board. Tech Mahindra subsidiary Venturbay Consultants Private Limited offered 58 rupees per share (about 1.16 dollars) for controlling equity, against 45.90 rupees by Larsen and Toubro and 20 rupees by Cognizantwilbur Ross, Satyam board member Kiran Karnik said. Shares of Tech Mahindra rose to end at 359.45 rupees, 12.31 per cent higher than its previous close on the Bombay Stock Exchange. Britain's BT Group holds 31 per cent equity in Tech Mahindra. 'Our joint venture partner BT was incredibly supportive,' Tech Mahindra managing director Vineet Nayyar told a press briefing. Officials of Tech Mahindra, which is a major player in the telecom sector, said the company had enough resources to meet the immediate needs of its bid. 'The technical capabilities of Satyam are outstanding. Our group will bring a layering of governance which had gone astray at a time,' Nayyar said adding that the two companies were complementary. Industry analysts said the proposed acquisition would help Tech Mahindra position itself as a lead player in the IT sector along with TCS Infosys, Wipro and TCS. Mahindra Group chairman Anand Mahindra said the potential of Satyam and faith in its future had driven his company to bid for it. Satyam's scrip jumped by 16.43 per cent during the day's trade but closed just 3.61 per cent over its previous close at 48.85 rupees. The total valuation of 51 per cent controlling equity in Satyam at the rate of 58 rupees per share works out to 28.89 billion rupees (579 million dollars).
•
•
•
•
•
•
• •
•
Tech Mahindra has to buy a 31 per cent stake in Satyam through a new share issue and make an offer in the open market for an additional 20 per cent shares. 'Once the CLB approval comes in and Tech Mahindra deposits the required amount in an escrow account, it will be given management control of the company,' Karnik said. 'The selection of the highest bidder, in a fair, open and transparent process signals a new stage for the company in its progress towards stabilization,' Karnik said. Acquiring Satyam was a good opportunity for Tech Mahindra to expand its business, Karnik, a former head of NASSCOM, Indian IT industry's trade body, added. Satyam Computer is India's fourth-largest information technology services firm and operates in 66 countries. It has 48,000 employees and counts 185 Fortune 500 companies as its customers. A majority of clients had opted to stay with Satyam despite its problems and the bid offers indicated confidence in the company, Satyam board member Deepak Parekh, one of India's top bankers, said at the briefing. He said Tech Mahindra was expected to make a payment by April 21. Once the bid-winner takes control it would decide how to handle Satyam's affairs, Parekh said, adding that the only condition was that it cannot strip the company. 'It cannot break up and sell the company,' he said. The two Satyam campuses and real estate with the company in headquarters Hyderabad, capital of southern Andhra Pradesh state, was worth 15 to 20 billion rupees, the officials said.
Trading chart of satyam computer
Last Trade: Trade Time: Change: Prev Close: Open: Bid: Ask: 1y Target Est:
5.04 10:07AM ET
Day's Range: 52wk Range: Volume: Avg Vol (3m): Market Cap: P/E (ttm): EPS (ttm): Div & Yield:
5.02 - 5.16 0.78 - 12.99 194,455 2,382,850 1.70B 3.94 1.28 0.03 (0.60%)
0.04 (0.79%) 5.08 5.03 N/A N/A 5.00
ď śSatyam Computer Services Limited • Satyam Computer Services Limited (Satyam) is a global information technology (IT) services provider, offering a range of services, including systems design, software development, system integration and application maintenance. Satyam offers a range of IT services to its customers, including application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services. The Company provides services to customers from various industries, including insurance, banking and financial services, manufacturing, telecommunications, transportation and engineering services. Satyam BPO Limited (Satyam BPO), a majorityowned subsidiary of the Company is engaged in providing business process outsourcing (BPO) services. Satyam operates in two segments: IT services and BPO services. As of July 6, 2009, Tech Mahindra Limited had acquired approximately 31.04% of the Company’s outstanding shares of common stock.
History of Infosys limited 1981 • Infosys is established by N. R. Narayana Murthy and six engineers in Pune, India, with an initial capital of US$ 250 • Signs up its first client, Data Basics Corporation, in New York 1983 • Relocates corporate headquarters to Bangalore
1987 • Opens first international office in Boston, US • • •
1993 Introduces Employee Stock Options (ESOP) program Acquires ISO 9001/TickIT certification Goes public
1994 • Moves corporate headquarters to Electronics City, Bangalore. Opens a Development Center at Fremont 1995 • Opens first European office in the UK and Global Development Centers at Toronto and Mangalore. Sets up e-Business practice 1996 • The Infosys Foundation is established
1997 • Opens an office in Toronto, Canada • Infosys is assessed at CMM Level 4 1998 • Starts enterprise solutions (packaged applications) practice 1999 • Touches revenues of US$ 100 million. Listed on NASDAQ • Infosys becomes the 21st company in the world to achieve a CMM Level 5 certification • Opens offices in Germany, Sweden, Belgium, Australia, and two development centers in the US • Infosys Business Consulting Services is launched 2000 • Touches revenues of US$ 200 million • Opens offices in France and Hong Kong, a global development center in Canada and UK, and three development centers in the US • Re-launches Banks 2000, the universal banking solution from Infosys, as Finacle™
2001 • Touches revenues of US$ 400 million. Opens offices in UAE and Argentina, and a Development Center in Japan • N. R. Narayana Murthy is rated among Time Magazine/CNN's 25 most influential businessmen in the world • Infosys is rated as the Best Employer by Business World/Hewitt 2002
• Touches revenues of US$ 500 million • Nandan M. Nilekani takes over as CEO from N.R. Narayana Murthy, who is appointed Chairman and Chief Mentor • Opens offices in The Netherlands, Singapore and Switzerland • Sponsors secondary ADS offering • Infosys and the Wharton School of the University of Pennsylvania set up The Wharton Infosys Business Transformation Awards (WIBTA) • Launches Progeon, offering business process outsourcing services 2003 • Establishes subsidiaries in China and Australia • Expands operations in Pune and China, and sets up a Development Center in Thiruvananthapuram 2004 • Revenues reach US$ 1 billion • Infosys Consulting Inc. is launched 2005 • Records the largest international equity offering of US$ 1 billion from India • Selected to the Global MAKE Hall of Fame 2006 • Infosys celebrates 25 years. Revenues cross US$ 2 billion. Employees grow to 50,000+ • N. R. Narayana Murthy retires from the services of the company on turning 60. The Board of Directors appoints him as an Additional Director. He continues as Chairman and Chief Mentor of Infosys 2007 • Infosys crosses revenues of US$ 3 billion. Employees grow to over 70,000+
• Kris Gopalakrishnan, COO, takes over as CEO. Nandan M. Nilekani is appointed Co-Chairman of the Board of Directors • Opens new subsidiary in Latin America • Reports Q2 revenue of over US$ 1billion 2008 • Infosys crosses revenues of US$ $ 4.18 billion. Employees grow to over 90,000+ • Reports Q4 revenue of US$ 1,142 million • Established in 1981, Infosys is a NASDAQ listed global consulting and IT services company with more than 105,000 employees. From a capital of US$ 250, we have grown to become a US$ 4 billion company with a market capitalization of approximately US$ 27 billion. • In our journey of over 28 years, we have catalyzed some of the major changes that have led to India's emergence as the global destination for software services talent. We pioneered the Global Delivery Model and became the first IT Company from India to be listed on NASDAQ. Our employee stock options program created some of India's first salaried millionaires.
Profile of Infosys limited
• Infosys a Bangalore based company started in 1981 has around 5,500 employs and hopes to double this figure to 10,000 till the end of year 2003(courtesyBusiiness India). • The highest rated script on the Indian bourses - Infosys is the most admired company on the BSE. It is the face of the Indian software industry. The company was the first in India to register on the American stock exchange NASDAQ with an issue of two million American Depository Shares (ADR) that raised $70 million.
• As a part of Infosys globalization efforts the company has set up a global development centre in Toronto. It also established two proximity centers at Freemont, California and Boston, Massachusetts. Infosys continues to expand in Europe. In India the development centers are to be opened at Mohali, Mangalore, Mysore, Hyderabad, Pune, Chennai and Bhubhaneshwar.The companies top clients include Nordstrom, Nortel and Goldman Sachs. Capital One Services Inc., one of the largest issuers of credit cards, is a new addition to the company's clientele. Infosys was assessed at SEI-CMM Level 5 developed by the Carnegie Mellon University. The company has pioneered the Employee stock option plan(ESOP)in India. The company has grown spectacularly with soaring profit margins that stood at Rs.285 crore, up from 132 crore in 1998-99(courtesy Computers Today). Amongst its major products are the banking soft wares popularly known as Finnacle, Banc2000 and Bank Away? • The company was also judged as the 5th best managed company in Asia. The company's Chairman Mr.N.R.Narayan Murthy was selected as one of the 50 most powerful people in Asia for the year 2000 in a poll conducted by Asia week. • The company provides a 3 month training to the new recruits in Bangalore. There is also a service agreement for an year. The pay package is around Rs.17, 000(approx.) for the year 2000 recruits.
Management team
Srinath Batni Director and Head, Delivery Excellence
Rama Bijapurkar Independent Director
K. Dinesh Director and Head, Communication Design Group, Information Systems and Quality and Productivity
Dr. Omkar Goswami Independent Director
S. Gopalakrishnan Chief Executive Officer and Managing Director
Sridhar Iyengar Independent Director
N. R. Narayana Murthy Chairman of the Board and Chief Mentor
Deepak M. Satwalekar Lead Independent Director
T. V. Mohandas Pai Director and Head, Finnacle, Admin, Human Resources, Infosys Leadership Institute and Education and Research
Claude Smadja Independent Director
S. D. Shibulal
Chief Operating Officer and Member of the Board
Dr. Marti G. Subrahmanyam Independent Director
David L. Boyles Independent Director
K. V. Kamath Independent Director
Jeffrey Sean Lehman Independent Director
Board of directors
V. Balakrishnan Senior Vice President and Chief Financial Officer, Infosys Technologies
Subhash Dhar Senior Vice President and Head, Global Sales, Alliances and Marketing
B. G. Srinivas Senior Vice President, Manufacturing; Product Engineering; Product Lifecycle and Engineering Solutions, Infosys Technologies
Chandra Shekar Kakal Senior Vice President and Global Head, Enterprise Solutions, Infosys Technologies
Ashok Vemuri Senior Vice President and Global Head, Banking and Capital Markets; Strategic Global Sourcing, Infosys Technologies
Amitabh Chaudhry Chief Executive Officer and Managing Director, Infosys BPO Head, Independent Validation Solutions, Infosys Technologies
M. D. Ranganath Chief Risk Officer, Infosys Technologies
Prabhakar Devdas Mallya Vice President and Head, Security Audit and Architecture, Infosys Technologies
Dheeshjith V. G. Head, New Markets and Services, Infosys Technologies Member of the Board, Infosys Technologies, Australia and Infosys Technologies, China
Subrahmanyam Goparaju Vice President and Head, Software Engineering and Technology Labs (SETLabs), Infosys Technologies
Nandita Gurjar Senior Vice President and Group Head, Human Resources, Infosys Technologies
Prasad Thrikutam Senior Vice President and Head, Energy, Utilities and Services, Infosys Technologies Director, Infosys China Suryaprakash K Vice President, Information Systems, Infosys Technologies
Pravin Rao Senior Vice President, Retail, Consumer Packaged Goods, Logistics and Infrastructure Management Services, Infosys Technologies Director, Infosys Australia Jackie Korhonen Managing Director and Chief Executive Officer, Infosys Technologies, Australia & New Zealand
Raj Joshi Director, Infosys Consulting
Trading chart of Infosys • It's an ironic twist -- an Indian company shipping tech jobs to the U.S. -but also a natural evolution, analysts said. • Executives at Infosys, the second-largest Indian outsourcing firm, told Dow Jones Newswires in India on Friday that the new subsidiary, called Infosys Technologies Inc., will pursue government contracts for information technology that one market research firm estimates will reach $59.5 billion through 2012. • "There is a lot of spending happening both at the federal and state levels," said chief financial officer V. Balakrishnan. "We don't want to miss that." • Infosys did not return calls from The Dallas Morning News for additional comment. • The company declined to talk about how many people it will be hiring, but one local analyst said the initial staff will probably number in the hundreds and grow over time. • "If you're going to have a service industry in the United States, Dallas is one of the places you're going to have it," said Peter Bendor-Samuel, chief executive of Everest Group, a Dallas-based outsourcing consulting firm. • He said the region's historic legacy in the outsourcing business -- dating back to when Ross Perot founded the industry with Electronic Data Systems Corp. in 1962 -- has produced the skilled workers that companies like Infosys will need to thrive in the U.S. • While it may seem odd that Indian firms are migrating some of their work to the U.S. after years of American companies dispatching jobs to India, Bendor-Samuel said being in-country is critical for landing government contracts. • When it comes to landing health care business, many providers and federal agencies are reluctant to send that work outside the U.S. • And the law often requires that defense and homeland security contracts be handled only by U.S. citizens.
• With growth in their traditional business segments slowing, Indian companies like Infosys have no choice but to accommodate the conditions set by the few segments that are growing. • For example, Tata Consultancy Services, the largest Indian outsourcer, recently expanded a facility in Cincinnati, while another Indian outsourcer, Wipro, is hiring hundreds of workers in Atlanta.
Splits: 15-Feb-00 [2:1], 07-Jul-04 [2:1], 18-Jul-06 [2:1]
Last Trade: Trade Time:
53.20 10:37AM ET
Change:
0.72 (1.37%) 52.48 53.02 53.18 x 300 53.21 x 300 45.33
Prev Close: Open: Bid: Ask: 1y Target Est.:
Day's Range:
52.89 - 53.29
52wk Range: Volume: Avg Vol (3m): Market Cap: P/E (ttm): EPS (ttm): Div & Yield:
22.61 - 53.13 456,872 1,838,120 N/A N/A N/A N/A (N/A)
Analysis of stock option on satyam computer and Infosys
Long term implied growth rates rank software near top of industry sectors
Growth Expectations Next 10 years Percent Housing Construction
0
Pharmaceuticals Consumer Electronics Electric Utilities Defence Consumer Financial Services Chemicals Consumer Goods Retail Healthcare Provider Software
percent
Healthcare Payors Data Communication Equipment Semiconductor Internet Services Years
OCK VALUATION OF SATYAM COMPUTER AND INFOSYS LIMIT
Stock-Market Analysis • Calculate the earnings per share (EPS) of a stock market series and the expected P/E ratio (earnings multiplier) of a stock market series, using the series’ expected dividend payout ratio, required rate of return, and expected growth rate of dividends; • Estimate and interpret the earnings multiplier of a stock market series, explain changes in it, and calculate the expected rate of return for a stock market series; • Explain how the top-down approach can be used to analyze the valuation of world stock markets. Industry Analysis • Discuss the key components that should be included in an industry analysis model; • Illustrate the life cycle of a typical industry; • Analyze the effects of business cycles on industry classification (i.e., growth, defensive, cyclical); • Analyze the impact of external factors (e.g., technology, government, foreign influences, demography, and social changes) on industries; • Illustrate the inputs and methods used in preparing an industry demand-and-supply analysis; • Explain factors that affect industry pricing practices.
Competitive Strategy: The Core Concepts • Analyze the competitive advantage and competitive strategy of a company and the competitive forces that affect the profitability of a company and discuss the two fundamental questions determining the choice of competitive strategy; • Explain how competitive forces determine industry profitability; • Analyze basic types of competitive advantage that a company can possess and the generic strategies for achieving a competitive advantage, analyze the risks associated with each of the generic strategies, discuss the difficulties and risks of simultaneously using more than one of the generic strategies, and discuss the difficulties in sustaining a competitive advantage with any generic strategy; • Explain the role of a generic strategy in the strategic planning process. Company Analysis and Stock Valuation • Differentiate between 1) a growth company and a growth stock, 2) a defensive company and a defensive stock, 3) a cyclical company and a cyclical stock, and 4) a speculative company and a speculative stock; • Describe and estimate the expected earnings per share (EPS) and earnings multiplier for a company; • Calculate and compare the expected rate of return based on the estimate of intrinsic value to the required rate of return; • Describe the elements of a franchise P/E; • Describe how an analyst can use the growth duration model to determine whether a firm’s P/E ratio is justified and describe the factors to consider when using the growth duration technique to imply a company’s P/E. The Equity Valuation Process • • • •
Define valuation and discuss the uses of valuation models; Contrast quantitative and qualitative factors in valuation; Discuss the importance of quality of inputs in valuation; Discuss the importance of the interpretation of footnotes to accounting statements and other disclosures; • Calculate alpha; • Contrast the going-concern and non-going-concern assumptions in valuation; • Contrast absolute valuation models to relative valuation models; • Discuss the role of ownership perspective in valuation. Discounted Dividend Valuation • Discuss the advantages and disadvantages of dividends, free cash flow, and residual income as measures of cash flow in discounted cash
• •
• • •
• • • • • • • • • • • •
flow valuation, and identify the investment situation for which each measure is suitable; Determine the circumstances in which a dividend discount model (DDM) is appropriate for valuing a stock; Explain the capital asset pricing model (CAPM), arbitrage pricing theory (APT), and bond yield plus risk premium approaches for estimating the required rate of return for an equity investment, and calculate the required rate of return using each approach; Estimate the Gordon growth model equity risk premium; Discuss the limitations of using the CAPM and APT to estimate the required return on equity; Calculate the expected holding-period return on a stock, given its current price, expected next-period price, and expected next-period dividend and contrast the expected holding-period return to the required rate of return; Discuss the effect on expected return of the convergence of price to value, given that price does not equal value; Calculate the value of a common stock using the DDM for one-, two-, and multiple-period holding periods; Calculate the value of a common stock using the Gordon growth model, and explain the underlying assumptions; Calculate justified leading and trailing price-to-earnings (P/E) ratios based on fundamentals, using the Gordon growth model; Calculate the value of fixed-rate perpetual preferred stock, given the stock’s annual dividend and the discount rate; Calculate the present value of growth opportunities (PVGO), given current earnings per share, the required rate of return, and the value of the stock; Explain the strengths and limitations of the Gordon growth model, and justify the selection of the Gordon growth model to value a company, given the characteristics of the company being valued; Explain the assumptions and justify the selection of the two-stage DDM, the H-model, the three-stage DDM, or spreadsheet modeling; Explain the growth phase, transitional phase, and maturity phase of a business; Explain terminal value and discuss alternative approaches to determining the terminal value in a discounted dividend model; Calculate the value of a common stock using the two-stage DDM, the H-model, and the three-stage DDM; Explain how to estimate the implied expected rate of return for any DDM, including the two-stage DDM, the H-model, the three-stage
DDM, and the spreadsheet model and calculate the implied expected rate of return for the H-model and a general two-stage model; • Explain the strengths and limitations of the two-stage DDM, the Hmodel, the three-stage DDM, and the spreadsheet model; • Define sustainable growth rate and explain the underlying assumptions and calculate and interpret the sustainable growth rate for a company; • Estimate, using the DuPont model, a forecast for return on equity that can be used to estimate a company’s sustainable growth rate. Free Cash Flow Valuation • Define and interpret free cash flow to the firm (FCFF) and free cash flow to equity (FCFE); • Describe the FCFF and FCFE approaches to valuation, and contrast the appropriate discount rates for each model and explain the strengths and limitations of the FCFE model; • Contrast the ownership perspective implicit in the FCFE approach to the ownership perspective implicit in the dividend discount approach; • Discuss the appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), or cash flow from operations (CFO) to calculate FCFF and FCFE; • Calculate FCFF and FCFE given a company’s financial statements prepared according to U.S. GAAP or International Accounting Standards; • Discuss approaches for forecasting FCFF and FCFE; • Contrast the recognition of value in the FCFE model to the recognition of value in dividend discount models; • Explain how dividends, share repurchases, share issues, and changes in leverage may affect FCFF and FCFE; • Critique the use of net income and EBITDA as proxies for cash flow in valuation; • Discuss the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models (including assumptions), and explain the company characteristics that would justify the use of each model; • Calculate the value of a company using the single-stage, two-stage, and three-stage FCFF and FCFE models; • Explain how sensitivity analysis can be used in FCFF and FCFE valuations; • Discuss the approaches for calculating the terminal value in a multistage valuation model;
• Describe the characteristics of companies for which the FCFF model is preferred to the FCFE model. Market-Based Valuation: Price Multiples
• Distinguish between the method of comparables and the method based on forecasted fundamentals as approaches to using price multiples in valuation, and discuss the economic rationales for each approach; • Define a justified price multiple; • Discuss rationales for using each price multiple and dividend yield in valuation, discuss possible drawbacks to the use of each price multiple and dividend yield, and calculate each price multiple and dividend yield; • Calculate underlying earnings given earnings per share (EPS) and nonrecurring items in the income statement and discuss the methods of normalizing EPS, and calculate normalized EPS by each method; • Explain and justify the use of earnings yield (E/P); • Discuss the fundamental factors that influence each price multiple and dividend yield; g) calculate the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals; • Calculate a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology; • Define the benchmark value of a multiple; • Evaluate a stock by the method of comparables using each of the price multiples and explain the importance of fundamentals in using the method of comparables; • Calculate the P/E-to-growth ratio (PEG), and explain its use in relative valuation; • Calculate and explain the use of price multiples in determining terminal value in a multi-stage discounted cash flow (DCF) model; • Discuss alternative definitions of cash flow used in price multiples, and explain the limitations of each definition; • Discuss the sources of differences in cross-border valuation comparisons; • Describe the main types of momentum indicators and their use in valuation. Residual Income Valuation • Calculate and interpret residual income and describe and calculate alternative measures of residual earnings (i.e., economic value added, market value added);
• Discuss the uses of residual income models; • Calculate future values of residual income, given current book value, consensus earnings growth estimates, and an assumed dividend payout ratio and calculate the intrinsic value of a share of common stock using the residual income model; • Contrast the recognition of value in the residual income model to value recognition in other present value models, discuss the strengths and weaknesses of the residual income model, and justify the choice of the residual income model for equity valuation, given characteristics of the company being valued; • Discuss the fundamental determinants or drivers of residual income; • Explain the relationship between residual income valuation and the justified price-to-book ratio based on forecasted fundamentals; • Explain the relationship of the residual income model to the dividend discount model and the free cash flow to equity model; • Discuss the major accounting issues in applying residual income models; • Calculate an implied growth rate in residual income, given the market price-to-book ratio and an estimate of the required rate of return on equity; • Define continuing residual income and list the common assumptions regarding continuing residual income; • Justify an estimate of continuing residual income at the earnings forecast horizon, given company and industry prospects; • Calculate and interpret the intrinsic value of a share of common stock using a single-stage residual income model; • Calculate and interpret the intrinsic value of a share of common stock using a multi-stage residual income model, given the required rate of return, forecasted earnings per share over a finite horizon, and forecasted continuing residual earnings.
CONCLUTION
We have already identified the problem in Satyam Computer Services and our research shows the problem is also present in most of the other business houses in India. Clearly, the problem is abuse of corporate governance by dominant shareholder and it can be solved by disciplining the dominant shareholder. The regulator (the company law administration as well as the securities regulator for example SEBI) and the capital market can play an important role in preventing the Satyam scandal happens again. With time Software export from India was becoming more attractive. Companies in Indian Information Technology industry were trying to change their focus to exploit this opportunity. Software opportunities were de-linked from the hardware manufacturers in 1970 by IBM. Firms that were joint ventures between Indian counterpart and a foreign hardware technology leader also realized the software development competence that India had. With large number of English speaking technical graduates it was easier to make money in software business in India than hardware business. Especially the Indian counterpart was more eager to change over to the software service export business like Tata Unisys. This change in the strategic environment caused by the technology change was “Radical� in the sense that they made the old skills and capabilities obsolete and demanded the firms to make substantial investment for negotiating this change. These changes made the incumbent firms inefficient and favored new entrants with software export focus. The change process got delayed in case of joint ventures as changes were not win-
win for both the partners. Incumbent JV firms continued to use second best solution in the changed environment which was agreeable to both the partners. They tried to go into software business slowly. In a market place characterized by high competition these incumbent JV firms started lagging the software export focused entrant’s performance. These Incumbent JVs either went out of market or made the investment to negotiate the change very late. By this time they hade lost the market leadership to the new entrants (Christensen, 1997).
PRACTIC EXPERIENCE FACED Description of live experience I was supposed to use the database provided by the company to make cold calls or by directly meeting people to get new leads. While making cold calls, we need to have: •
Good Communication Skills (Voice quality is clear and articulate)
•
Persistent and able to bounce back from rejection
•
Good organizational skills.
•
Ability to project a telephone personality (Enthusiasm, friendliness)
•
Flexibility: can adapt to different types of clients and new situations.
Using a good database is very essential. “Eighty percent of our business comes from 20 percent of our customers" is a frequent statement at any sales convention. There's hardly a sales executive who is not aware of the 80/20 rule”. While talking to customers, I analyze their needs. Whether they want to go for investment purpose or insurance or both. Suggest them the plan that best suits them. If they agree to it then either we send across the agents to close the deal or close it themselves.
Problems faced while selling products: •
Customer dissatisfied with the services.
•
People fear that Reliance Money Being a Private company and a new entrant may be able to sustain or not.
•
Insurance means LIC for people.
•
Past experience, word of mouth.
•
Misguidance by agents.
•
People do not want insurance products.
•
Lack of knowledge and awareness about general and life insurance.
•
People risk appetite is very low, so they are afraid of mutual fund as well.
•
People relate the problems of mobile phones of Reliance Communication with IL&FS INVESTSMART.
SWOT ANALYSIS Weakness • Inexperienced Staff • Low awareness due to lack of advertisement. • Lack of loyal clientage • Developing product. Opportunity • Untapped Market • Increased spending power • Changing Mindset of Customers • Unpredictable Sensex
Strength • Co-operative and Experienced Branch Managers • Good Database • Reliance Brand • Low pricing Threat • Reach • Stiff competition from existing players in the market • Better products
conclution
Based on the findings of our project we would like to suggest the following:•
After sales services and follow up calls are important for getting new
references so trained telesales should be appointed for this purpose whose sole work should be to make feedback calls. •
Investsmrt is having too many financial products right from Demat
account to General Insurance and not all the salespeople are familiar with each and every product so the work force should be segregated each group dealing in a specific product and the sales target should be given likewise. •
While interacting with the investors I found that most of the customers
are unaware about the Mutual fund. Some of the people look upon mutual funds and equity trading as gambling. Thus a mutual fund awareness program can help to increase the penetration of mutual funds in the market. •
Money multiplier should declare in black ink that they will charge just 5
paisa per transaction. People tend to think that there must be some hidden charges.
•
Rs950 account opening charges are too high when targeting a corporate
so the company should be flexible on this amount. •
Money Multiplier should provide periodic training for updating the
product knowledge of various financial advisors. •
Company should have a scheme of rewards and recognition to employees
and the field persons to boost their motivation.
KEY ISSUES AND CONCLUSIONS Based on the above SWOT analysis and study of the available data I have come to the following conclusions: HUGE POTENTIAL: •
All though relatively new entrants in the market, Money Multiplier is
slowly but surely gaining a strong hold because it is finally able to grasp the investment climate in Vadodara. Secondly the branch managers at all the branches are very knowledgeable with a lot of experience in the financial markets so under their leadership can definitely expand its base •
The entire workforce consists of mostly youngsters, which means they
can be encouraged and motivated to do good work because they have a long way to go and most of them are eager to climb the ladder.
•
Right now Reliance is at its nascent stage and will surely grab the major market under its belt very soon like in other fields.
Huge investments taking place: •
The Stock Market has been very buoyant until now especially in the past
3 years. This particular trend is very favorable because a soaring SENSEX means higher returns, which encourages the investors to invest their money in the market. Although in the past 3 months the market has shown very unpredictable trend and has already lost over 1000 points. •
So in order to make the best the only thing required is to recruit more
field staff who should be trained in a proper way to get better results. •
In case of insurance, it requires push selling because people always
associate it with emergencies and unpleasant situations like death and they don’t want to think about such situation let alone prepare for them, which means it requires a lot of conviction on part of the executives.
Large untapped market: •
People have just opened up to the idea of ULIPs because till now they
knew only two kinds of insurance plans, endowment and term plans so the concept of high returns with protection is very new to them and slowly and slowly these are becoming popular so there is a huge market waiting to be tapped. •
In the past few years there has been a tremendous inflow of funds in the
Indian market which has lead to the sky rocketing SENSEX. In fact there has been a tremendous response from the investors not only in shares. Equity market is an example of the growing trust of investors who earlier shied from such investments due to stock market fiascos like the Harshad Mehta scam or the US64 disaster in which investors lost huge amounts of money as well as their trust in financial instruments. •
With the FDI limits being relaxed, a lot of avenues will open up in the
insurance sector and insurance companies are expected to come up with new plans with a great deal of customization and flexibility.
limitations
1. Cold Calling •
Voice and accent plays a major role.
•
The right time to call a customer cannot be decided, as the customer may
in a different mood at the time of calling. •
Time consuming
•
Less success rate
2. Corporate •
Time consuming
•
Contacts with higher authorities play a major role
4.2
SUMMARY OF FINDING 1. Preference of Investment
Result of Preference of Investment Interpretation: This shows that although the mutual funds market is on the rise yet, the most favored investment continues to be in the Share Market. So, with a more transparent system, investment in the Stock Market can definitely be increased. 2. Awareness on Online Share Trading
Result of Awareness of Online Share Trading
Interpretation: With the increase in cyber education, the awareness towards online share trading has increased by leaps and bounds. This awareness is expected to increase further with the increase in Internet education. 3. Awareness of IL&FS Invest smart as a Brand
Result of Awareness of Reliance money as a Brand
Interpretation: This pie-chart shows that reliance money has a reasonable amount of Brand awareness in terms of a premier Retail stock broking company. This brand image should be further leveraged by the company to increase its market share over its competitors.
4.
Relience money Facilities
Result of Awareness of Reliance money Facilities
Interpretation: Although there is sufficiently high brand equity among the target audience yet, it is to be noted that the customers are not aware of the facilities provided by the company meaning thereby, that, the company should concentrate more towards promotional tools and increase its focus on product awareness rather than brand awareness. 5. Satisfaction Level among Customers with current broker
Result of satisfaction level among customers with current broker
Interpretation: This pie-chart corroborate the fact that Strategic marketing, today, has gone beyond only meeting Sales targets and generating profit volumes. It shows that all the competitors are striving hard not only to woo the customers but also to make them Brand loyal by generating customer satisfaction.
6. Frequency of Trading
Result Trading
of
Frequency
of
Interpretation: Inspite of the huge returns that the share market promises, we see that there is still a dearth of active traders and investors. This is because of the non – transparent structure of the Indian share market and the skepticism of the target audience that is generated by the volatility of the stock market. It requires efficient bureaucratic intervention on the part of the Government.
7. Percentage of earnings invested in Share Trading
Result of percentage of earning invested in share trading
Interpretation: This shows that people invest only upto 10% of their earnings in the stock market, again reiterating the volatile and non-transparent structure of the Indian stock market. Hence, effective and efficient steps should be undertaken to woo the customers to invest more in the lucrative stock market.
questionnaire
Q1. In which of these Financial Instruments do you invest into?
Shares
Mutual Funds
Bonds
Derivatives
Q2. Are you aware of online Share trading?
Yes
No
Q3. Heard about Money Multiplier?
Yes
No
Q4. Do you know about the facilities provided by Money Multiplier?
Yes
No
Q4. Do you know about the facilities provided by Money Multiplier?
Yes
No
Q5. With which company do you have your DEMAT account?
Reliance money Money Multiplier
ICICI Direct
IL&FS INVESTSMART
Others (please specify)
Q6. What differentiates your Share trading company from others? (in regards of brokerage, satisfaction, services, products )
Q7. Are you currently satisfied with your Share trading company?
Yes
No
Q8. How often do you trade?
Daily
Weekly
Monthly
Yearly
Q9. What percentage of your earnings do you invest in share trading?
Up to 10%
Up to 25%
Up to 50%
Above 50%
Q13. How do you rate these share trading companies?
1.
2.
4.
5.
3.
a. Reliance money b. ICICI Direct c. Money Multiplier d. IL&FS INVESTSMART e. Others (Please specify)
Q14. What more facilities do you think you require with your DEMAT account?
Personal Information
Name
:
Age
Sex
:
:
Male
Female
Phone No :
Occupation:
bibliography
www.satyam.com www.humsurfer.com www.scribd.com www.whereisdoc.com www.bseindia.com www.nseindia.com www.moneycontrol.com www.rediff.com/money
www.yahoo.com/finance www.infosys.com http://timesofindia.economictimes.com www.financialexpress.com www.amfiindia.com www.equitymasters.com www.softwarehistory.org
No objection certificate