Larsen and Toubro (L&T) on Friday tripled its stake in Satyam Computer Services to marginally over 12% by acquiring shares through open market operations.
Larsen and Toubro (L&T) on Friday tripled its stake in Satyam Computer Services to marginally over 12% by acquiring shares through open market operations on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
The engineering and construction conglomerate bought shares amounting to 5.8% stake on the NSE and around 1.8% on the BSE, adding to the 4.48% it already held. L&T chairman A M Naik has been keenly pitching for control of the beleaguered Hyderabad firm since the Raju scam broke. The obvious compulsion, based on concerns expressed by L&T’s top brass, was to protect its investment in Satyam.
The software major’s shares had taken a steep plunge of about 80% on January 7, shortly after L&T acquired around 4% stake in it.
With the stock unlikely to recover in a hurry, L&T could not have exited without taking a major hit and so, the investment was as good as locked up.
However, hiking stake further allowed an opportunity to make good on that investment, due largely to the many synergies that exist between its IT arm, L&T Infotech, and Satyam, say industry experts and analysts. For one, Satyam has been the fourth-largest SAP (business application software) integrator in the world after Accenture, IBM and Capgemini. L&T Infotech would certainly like to leverage that to increase its foothold in the SAP integration space from which it earns 10% of its revenues.
Second, Satyam earns a major chunk of its revenues from ERP implementation, besides SAP.
The bulk of the projects the company undertook in the ERP space were to maintain critical ERP systems. With Satyam in its fold, L&T Infotech would to in a position to increase its presence in the ERP domain.
Third, and as a Mumbai-based analyst tracking the two companies said, Satyam had less exposure to the banking, financial services and insurance (BFSI) vertical, which has acted as a shield in the current recession. This gives L&T Infotech reason all the more to aggressively seek a controlling stake in the company. The fourth attraction is the valuation at which Satyam is available today.
Finally, the changes effected by L&T Infotech in recent days suggest its readiness to jump into the big league of IT services firms.
The company, which had a capacity of 12,769 seats in 2007, plans to expand to 27,000 seats by 2010. It has taken in ex-Wiproite Sudip Banerjee as the CEO. Banerjee, who has worked with Wipro Technologies for over 20 years, is generally credited with growing the revenues of the company’s enterprise services division from $160 million in 1996 to $1.4 billion in 2002.
Banerjee headed industry verticals such as manufacturing, retail, energy & utilities, media and healthcare, comprising a team of over 19,000 employees by the time he left Wipro. L&T Infotech, which is keen to grow in these verticals will surely benefit from Banerjee’s experience and key customer contacts to get quick and large contracts, a Mumbai-based analyst said.
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