Stock Review: MAHINDRA SATYAM

The stocks of Mahindra Satyam, erstwhile Satyam Computer Services, dropped 6% to . 72.3 on Monday after the company reported a net loss of . 327 crore for the March 2011 quarter. However, the company's clarification that the huge loss was on account of a one-time expense on the settlement of US shareholder lawsuit came as a relief.

The clarification helped the scrip to recoup its Monday's loss by gaining almost 4% to . 76 during the first half of Tuesday. Subsequently, the company's announcement related to its involvement in the IT revolution in Qatar lifted market sentiments further. The scrip ended the day with a 11% gain at . 82, a six-month high.

With the legal settlement in the US, most of the litigations are over, with only one major Aberdeen suit liability pending. These legal suits were the key risk factor in the company's valuation. The improving clarity in this regard is likely to add stability to the company's overall business, going ahead.

Ultimately, the company is set to merge with the parent company, Tech Mahindra, once all the issues with the US capital market watchdog SEC are resolved. The earlier deadline of FY12 for the two entities to integrate is likely to be postponed to FY13 due to delays in solving legal and procedural issues.

On a positive note, the company has started winning back the confidence of clients, which it had lost post the financial fraud. This is reflected in new client additions. It added 12 clients during the quarter, predominantly across BFSI and media and entertainment segments. Moreover, what came as a key improvement for the company during the quarter is its higher operational efficiency. The company doubled its operating profit margin to 13%, which is still less than half its bigger rivals, such as TCS and Infosys.

Mahindra Satyam reported a 3.5% volume growth and 1.6% cross currency gains during the March 2011 quarter, driving a 7.5% sequential growth at . 1,375 crore in net sales before exceptional items. The company's robust hiring plans for FY12 and wage increases due in July 2011 are likely to act as a headwind. However, the strong outsourcing demand globally and the improved operational stability are likely to fare well for the company in the coming quarters.