'IT' Happenings...

Early part of this weeks, there are important happening in IT sector, which had been reported in News channels.

i) Tech Mahindra showing faith in Satyam and acquiring the same.

ii) Infosys losing faith on about 2000+ employees and were given 'pink' Slip, citing performance factor

I believe both are significant development in the IT sector.

Now, coming to Tech Mahindra its in interesting proposition,

Financial Prespective: Its expected to invest are approx Rs 2900 crores in Satyam, except Rs 700 crores the rest 3/4th of money for this investment is going to raised as debt.

So the next question would be if its going to raise these fund as debt then its have to payback interest and principal or atleast the interest. Ideally, in business or accounting sense there need have a ROI (return of investment) which can service the interest part. More importantly

* Satyam should be a profit making company (We were aware that company's account books are in the process of being re-stated).

* Apart from being a profit making company, it has to declare dividend, These dividend should have to be more than 10% (considering bank interest is going to be above 10%). But, then the 10% dividend is only on face value of the share and hence might not be a huge amount to service the debt.

The other alternative options could be that, sell the stocks acquired by Mahindra's once it reached higher maket value , I believe Mahindra's have quoted Rs 58 per share OR look at some other internal source of money to service the Debt. Nevertheless, its going to be an interesting proposition of using debt to finance the equity.

Product / IT services prespective: As far as I am aware of, Satyam does not have any software product to its credit, its more of IT service provider company.

Well, I am not sure whether it really makes sense to acquire a IT service provinding company. Offcourse, when you acquire IT service providing company, you do get the clients as well. But then these days, the MNC client are dependent on product rather then service.

What this means is if company 'A' (customer) uses an ERP for example SAP, then its dependent on this product software. Going for a different product software year-on-year basis does not make sense. However if company 'A' has a very good controlled implementation environment, meaning all customization are tracked and have the documentation for these customization then support services can be shifted between the vendors based on the support pricing they offer year on year basis. Hence, these days all fortune companies chooses their vendor on periodic basis based on pricing and other value add they provide. Same is the case, with new implementation as well.

Finally, with current economic recession, if revenue are going to be hit, Satyam should not end up being over capitalized.

Any ways, its not my money and I am sure Mahindra would have done it own analysis and should also be having a strategy in place to become a top player in the IT services sector.

All the best Mahindra & Satyam, was wondering what would be the new name of this business entity ?!!?.