Satyam's loss could be TCS' gain

15 Jan 2009


MUMBAI: One company’s misfortune might well be another’s opportunity. It is widely believed that many scam-hit IT firm Satyam Computer’s clients The Great Fall of Satyam
Five facts about Satyam
The Satyam scam will migrate to competitors such as Infosys, Tata Consultancy Services (TCS) and Wipro, over a period of time.

According to a recent Edelweiss Capital report, TCS is likely to garner maximum revenue from Satyam Computer’s pie as it has the highest client overlap with the latter. Infosys, it says, would perhaps gain less than Wipro, given its lower client overlap and greater selectivity.

Up to 40% of Satyam’ revenue pie can get redistributed among other players (i.e. up to $1 billion) on an annualised run-rate basis by the end of the quarter of the current fiscal, the report says.

“Given the gradual exit patterns, this may be effectively $500-600 million of actual outflow through the year (as not all of this gets out in the beginning itself, nor do all contracts exit upfront),” says the report.

The broking house is of the view that all large IT services majors would not gain to the same extent as a lot depends on the pricing discipline as well as the overlap of their strengths and clients with those of Satyam. “It feels that Infosys may prefer to stay away from those contracts that it believes will dilute the quality of revenues,” the report said.

There are very few clients who have exclusive vendor-relations with Indian IT companies. Of Satyam’s revenues coming up for re-negotiation from clients having multi-vendor relationships (that is having project tie-ups with other Indian firms), there is greater probability of 50% of such contracts going the other vendors’ way as switching costs are lower and comfort is higher, the report adds.

For example, Citibank and GM are clients of both Wipro and Satyam. It is likely that these relationships will significantly shift in favour of Wipro. About 25% of Satyam’s exclusive clients (one vendor client) are likely to shift to newer vendors, says the report. Among top Indian IT vendors, TCS is well-placed to garner maximum revenue pie (nearly $115 million in FY10, or 2% of FY09 revenues).


Wipro and Infosys follow behind with around $95 million and $80 million, respectively, (also within 2-2.5% of their FY09 IT-services revenues), notes the report. Cognizant, according to the Edelweiss report, could benefit relatively less given its limited strength in Satyam’s mainstay — ERP, manufacturing and presence in emerging markets.

HCL may not be a beneficiary as its entrenchment in ERP is relatively low, it adds. Besides, clients are more responsive to corporate governance issues putting Infosys, TCS and Wipro at relative advantage among Indian players, says the domestic broking house

ET Bureau