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Satyam gains on $310-mn ADR issue news

NetScribes/Ganesh Ramamoorthy

The Satyam Computer Services stock went up by 3 per cent on Monday after the company announced that it had filed for a $310-million ADR issue with the Securities and Exchange Commission in the US. The ADRs are to be listed on the New York Stock Exchange in January.

Compared to its previous close of Rs 375.65, the stock shot to a high of Rs 386.90 in early trading and then dipped to close at Rs 383, a gain of Rs 7.35, amidst substantial volumes of over 12 million shares on the Bombay Stock Exchange. On the National Stock Exchange too, the scrip witnessed huge volumes of 17 million shares.

The proceeds from the ADR are to be used for strategic acquisition, infrastructure development, and retiring debt of around Rs 1.91 billion as of September 30, 2000.

Analysts say that the strategic acquisitions are in line with the company's plans to achieve inorganic growth. "Strategic acquisitions will bring in inorganic growth to its topline. But the actual benefits will depend on the target acquisition and the price that it pays," said an analyst with a Bombay-based securities firm.

Analysts expect investor interest to come mainly from the US. They also expect the NYSE listing to help the local stock in the short term, as it will bring in more transparency in accounts and disclosures. At its current market price of Rs 376, Satyam trades at a forward multiple of 38 with an estimated EPS of around Rs 10 on the projected FY01 earnings.

"The valuations look very strong, given Satyam's strong presence in all IT services areas," said an analyst. "But there are still some concerns on its investments in subsidiaries. Currently, none of its subsidiaries book profits."

Two of its subsidiaries - Vision Compass and Satyam Infoway - reported net losses of $11 million (Rs 500 million) and Rs 790 million, respectively, in the previous fiscal.

"The losses are a drag on Satyam's profitability. They don't augur well, especially when the company is going for an ADR listing," the analyst said. "A venture capital funding at this point of time would help Satyam decide whether to write off the Vision Compass investment or not."

Vision Compass, engaged in developing software for tracking, collating and gaining intelligence from key business indicators, has a total investment of around Rs 530 million from Satyam Computer. But the company is yet to book a single client for its product, despite a reportedly good response to the beta version of the product.

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