Satyam's cash reserves raise eyebrows

Following the Satyam board's controversial Maytas takover bid and subsequent investor activism over the issue, the case appears to be getting more and more curious following the revelation that the company had parked large amounts of cash in current accounts that yielded no income.

Analysts have described the Rs.5,300 crore that  the Hyderabad-based company had as total cash reserves at the end of September as "baffling" and voiced concerns over the cash utilisation at the IT firm.
 
Discounting the benefit of excess cash in books they point out that concerns had been raised earlier on Satyam's cash management. According to a report by a leading broking houise, Satyam's management failed to give satifactory answers though it claims to have have transferred some of the cash from current accounts to deposit accounts on the same day of its abandoned takeover attempt. 

Satyam's current account balance swelled over 20 per cent from 16.4 per cent in September 2007 to 37.6 per cent in September 2008. At the same time pre-tax yield on average overall cash balance delclined from 6.7 per cent to 5.3 per cent. According to the report, analysts remain unimpressed with Satyam's account of its cash management and utilisation of cash. 

The company's dividend payout ratio is amongst the lowest and it does not appear willing to use it to finance a share buyback.

To appease angry investors, Satyam had originally scheduled a board meet for 29 December to consider a share buy-back arrangement. The meeting has subsequently been  rescheduled to 10 January. It is believed that this will give the board some more time to deliberate additional options, including dilution of the promoter's stake and the issues arising from it.

Meanwhile, there seems to be no dearth of players ready to acquire a strategic stake in India's fourth largest software exporter, which is now in deep trouble. Among the larger ones believed to be eyeing the firm keenly are the Anil Dhirubhain Ambani Group (ADAG), Mahindra British Telecom and L&T InfoTech. 

ADAG, which is already a strong contender on account of its 5 to 6 per cent in Satyam through its mutual fund and insurance ventures needs to acquire another 9 to 10 per cent before making an open offer.

Analysts believe there will be no shortage of sellers since some institutional investors seem interested in exiting the company if offered the right price, as they have lost confidence in the management.