Stock Review: MAHINDRA SATYAM

Satyam Computer Services has finally settled a long-pending lawsuit filed by the US Securities and Exchange Commission (SEC) after the company's previous management confessed to a financial fraud in January 2009. In an out-of-court settlement, Satyam has agreed to pay a civil penalty of $10 million (approximately . 4.4 crore) to the US securities' watchdog. The development is an important step towards taking the company further away from its tainted past and to regain its formidable position in the global IT outsourcing market.

This is the second instance of a dispute settlement for Satyam since February, when it had agreed to pay $125 million (over . 562 crore) to plaintiffs of a private class action suit. The company's sustained efforts to get out of legal tangles is likely to reassure investors, who were at the receiving end of a financial shenanigan by the previous management in early 2009.

Satyam operates under the brand, Mahindra Satyam, after Tech Mahindra became its major shareholder in 2009. Its stock went up by 6% on Wednesday after the announcement of the SEC settlement. Its cash balance of . 2,900 should be sufficient to pay these legal settlements.

The improving clarity on legal matters should also add to stability in its overall business. As reported by the management during the last quarterly analysts call, the company's participation in the bidding process for various projects has increased. This is because it has started getting more invitations than before from prospective clients after it restated the financial numbers last September.

The scenario will further improve once the uncertainty over its pending lawsuits is over. The company still faces more than $68 million (around . 300 crore) in penalties in the US courts apart from a claim of . 503 crore from the IncomeTax Department in India.
According to industry trackers, Satyam has been aggressively pursuing deals in Europe, Australia, and the Middle East. It is expected to report a higher traction in some of its verticals during its March 2011 results' commentary. The dispute settlement may prompt Satyam's new management to list its Amercian Depository Receipts (ADS) again in the US market. The shares were delisted last year after the company failed to meet the deadline for submitting the revised results.