'TechM will be No 1 in other areas with Satyam buyout'

29 Apr 2009, ET Bureau

Excerpts of the interaction of the top management of Tech Mahindra and their employees at the “Tech Mahindra All Hands Meet Conference” last week. TechM is set to be the new owner of Satyam Computer Services.


Sanjay Kalra,President , International Operations Vineet Nayyar, Vice Chairman, MD and CEO


Sanjay Kalra: (President , International Operations)

If you start at the top, while our focus is the telecom ecosystem, only a very small slice of their business is telecom. And they work in all kinds of verticals, be it finance, be it commercial, health care, aerospace, etc. So, this is one big difference from Tech Mahindra that they focused on several verticals, including telecom which clearly is not as significant in size as it is for us.

The second large difference we see is that their service offerings, while our service offerings are focused on IT services, system integration, application development maintenance, and BPO, their areas of ERP and their areas of technology where they clearly are very well advanced. Their BPO is not as enhanced and advanced as ours is. So, what you would say is that if you look at their portfolio, the overlap is rather minimal with us. There will be overlap in the technology areas. So, this is the kind of capabilities they come to bring to the table.

Vineet Nayyar: (Vice Chairman, Managing Director and CEO):

As you can see that there is one of the perceived weaknesses of TechM and almost in every all-hands meet we’ve had, there was always one or two persons asking when are we going to get into other verticals. We have got into other verticals in a very, very big way. We have talked to lot of customers of Satyam. The customers showed incredible loyalty and at least 60% to 70% of the customers which were with Satyam are still with them.

They have 500 active customers at this point and their top clients include British Petroleum, Chevron, you name it, the top, or Citibank. At the moment, their employee strength is around 45,000. It has come down marginally over the last three months. The exact tally at this point is not known but it would be around 40,000 to 42,00 employees, including subsidiary, they have a few subsidiaries and with that it will be a little more.

How was this transaction structured?

We have created a special purpose vehicle and it is this special purpose vehicle which is acquiring the 51% stake in Satyam Computer Services at the rate of Rs.58 per share. To put it, simply, we are paying about 2,900 Crores for this company, out of which 1,800 Crores will come back to the company. So, our total outgo is of the order of about 1,000 Crores for acquiring Satyam.

We have revenue of around $1 billion. Satyam’s revenue was about $1.80 billion but there has been significant client attrition after the scandal. We believe it would be around $1.2 billion going forward. So, together, we would be in a range of about $2.2 billion in a very, very diversified fashion. As always, we will be #1 in telecom. But with the acquisition of Satyam, we will also be #1 in large number of other areas, including business intelligence and enterprise solutions. Obviously, this will de-risk our model and this will give us a strong suite in consulting and enterprise business solutions. Most importantly, it diversifies not only our verticals, but it diversifies our currency.

Lastly, we would clearly be now a Tier-One Company. And with Tier-One Company, our valuation would obviously go up. Does this mean that we are going to merge immediately with Satyam? The answer is no. We will have at least two to three years of parallel run. We will have Satyam with its own identity functioning as it was earlier. Clearly, there will be some management support from Tech Mahindra as it is a Tech Mahindra owned subsidiary. Similarly, TechM will continue on its own trajectory. And two years down the road possibly, or three years down the year possibly, we would integrate both the companies, so that you would have one large TechM.

What are the challenges going ahead?

There are legal cases too which we have to look at, there is restatement of accounts which we have to look at, there is an overhang resulting from the fraudulent activities of the earlier promoter which includes everyone from CBI to FERA violations. We would have to deal with government agencies and provide them with all the information. This does not impact on us or on our own management, but it is without doubt a distraction.