Mahindra Satyam: Delisting woes

Delisting of the company’s ADRs from the New York Stock Exchange takes a toll on the stock.

The buzz around Mahindra Satyam (Satyam Computer Services), as the company is set to declare its audited FY09 and FY10 results after nearly two years, has quickly dissipated. The news of the company delisting its American depository receipts (ADRs) from the New York Stock Exchange, citing difficulties in filing restated US GAAP results for this period within the required deadline, has taken a toll on the stock.

This has also raised questions about the level of disclosure in the results to be released on September 29. It will be hard to gauge current business trends, as results will be restated for FY09 and FY10. Analysts believe it is not clear if the current financial year’s first quarter results will be filed or not. They also expect FY10 revenues to be 72 per cent lower than the restated FY09 revenues of Rs 9,650 crore, with a steeper decline likely in the second half of FY10.

The company’s ability to milk the buoyant IT services demand will guide the revenue growth outlook. CLSA research believes the company has seen some client exits and project downsizing in FY10, which will hurt FY11 revenue growth prospects. Supply-side factors, like high employee attrition, have hurt margins across the sector and will add to operating margin pressure.

Religare research says playing the results restatement could be risky, especially if the last quarter results are not announced, given the uncertainties in the near-term business growth. However, as the statement of results is a precursor to the eventual merger of the company with Tech Mahindra, the brokerage sees upside in the medium term. Together, the companies will become strong, with a more diversified business exposure.

The stock ended 3.65 per cent lower on Monday at Rs 96.45. Waiting for results before deciding on the stock seems a sensible approach.