Satyam stock rise a relief for L&T

CHENNAI: As Satyam stock touched 10% daily upper limit for the second time in two days on Wednesday, L&T is heaving a huge sigh of relief. At the current price of Rs 73.5 per share, L&T's 12% stake or 8.11 crore shares, in the fraud-hit outsourcer is in striking distance to its average acquisition price of Rs 80 a share. Interestingly, L&T has already made provisions of Rs 186.3 crore with respect to its investment in Satyam in January-March quarter earnings.
L&T through its wholly-owned subsidiary L&T Capital bought shares of Satyam after Raju's confession and later followed it up with a bid of Rs 49.5 per share to take control of the Hyderabad-based company, but failed.According to rules, L&T said in April that it can not sell the Satyam stake before 6 months.
But the sharp appreciation in value of Satyam shares might mean that the stake might be retained by the management as portfolio investments as has been highlighted by top officials in the past, say analysts. At the current market price, the value of L&T's stake in Satyam would be around Rs 596 crore while it spent nearly Rs 650 crore in acquiring the shares. Satyam shares have already gained 62% in the past one month.
"With improved sentiments in the markets, the gain in Satyam's stock would also come as a positive for L&T, which might write back some portion of the earlier provision, as its portfolio loss eases," said an analyst with Sharekhan. For L&T, the portfolio loss on Satyam shares currently stands at Rs 53 crore, half of the figure (Rs 110 crore) on Tuesday's closing price.
After Satyam revealed it's financial information based on MIS estimates on Tuesday, marketmen have changed their view on the company as the operating margin of 17.5% (much higher than Raju's letter) and Satyam's annual revenue run rate appears to be in the region of $1.3-1.4 billion after taking into account the monthly revenue run rate of Rs 676 crore in February 2009 and a business attrition rate of 15-20% in the subsequent months.