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L&T to Sell Satyam Stake, rake big profits!

Yes, L&T after receiving the SEBI nod will start selling its stake in Mahindra Satyam erstwhile Satyam Computer Services with an aim to complete the transaction by the end of current fiscal.

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L&T had built up around 12% stake in Satyam before losing out to Tech Mahindra(TECHM) for the controlling stake. Some said, L&T had not bid aggressively enough and what not. But, then with people like Mr.A.M.Naik and Mr.Y.M.Deosthali at the helm of matters, you can be rest assured they know the right cards to play.

In fact, the Rs. 48 per share that L&T had bid was just right given the valuations and the cost of acquisition of existing 12% stake that they already had. Moreover, with lot of If’s looming large over the operations of Satyam , it now feels that L&T did the right thing after all.

But, what happens to their 12% stake? Lo and Behold, they have made a cash cow out of it which could very well fetch them over 2.5 billion rupees, and according to Mr. Naik,

"We have provided for a loss out of abundant caution. As of today, we are running a net profit of 3.5 billion rupees and I expect by the time we sell them we will make 2-2.5 billion rupees profit,"

Under SEBI norms, bidders for Satyam are barred from selling stakes acquired prior to the bid (for Satyam) for six months, as they had access to Satyam’s financial information that was not public at the time. Under this condition, L&T can sell its holding in Mahindra Satyam after October 14. On a side note, the value of 12% stake in Satyam is currently around 3.5 billion rupees.

All said and done, things are only getting better for the company that is dedicated towards Nation Building. The company has long been the favourite of one and all. Punters like it, Retail Investors like it and the majority of mutual funds have it in their portfolio.

No wonder, the stock is a undeniable Long Term Buy, and there is no analysis at play here. That’s pure faith in the operations and the financials of the company.

Here are some of the recent facts which provide a glimpse of the company’s financials / operations:

  • It has already booked orders totalling Rs 10,000 crore last month and is expecting an additional Rs 10,000-crore orders next month. This includes a contract for roads worth Rs 1,400 crore for a project in Tamil Nadu.
  • The company has been seeing increased activity both locally and overseas, as governments worldwide stepped up their investments in public projects to revive economies, post recession.
  • L&T recently got four orders from Qatar, UAE & Oman, aggregating $217.45 million (around Rs 1,044 crore) for building electrical sub-stations. It had also got a $153.45-million (Rs 736 crore) contract from Qatar Petroleum to build four sub-stations at Ras Laffan.
  • L&T also got contracts worth Rs 5,300 crore to build offshore platforms for ONGC, signalling a return of large orders from hydrocarbon companies and also setting the stage for similar contracts from power companies. L&T got the current contracts after beating global biggies, such as Samsung, Hyundai and NPCC.
  • L&T is going to be one of the major vendors in providers for turnkey projects in the nuclear sector. With the nuclear deal completed, the company is expected to increase its turnover in the sector from 3% to 7%
  • Recently, the company’s subsidiary, L&T Finance, said it would be able to raise Rs 1,000 crore through an ongoing redeemable non-convertible debentures issue. The issue is closing on September 4.

Now if that’s anything to go by, L&T has the wherewithal to stay strong even in the so called economy slowdown. Moreover, with economy shaping up gradually and the stock markets inching their way higher, things are only going to get better for L&T and it goes without saying the same will reflect in the share value of the stock.

So, I think it is the time to increase positions in L&T shares with a 3-4 year horizon. What are your thoughts, do you also have L&T shares in your portfolio, or do you think it is not worth holding?

Disclaimer: I have positions in the aforementioned stock. The thoughts presented here are only own and should not be considered as an investment advice of any sort.

[This post is written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

About Arun Prabhudesai

Arun Prabhudesai is founder / chief editor at trak.in. He jumped the Entrepreneurship bandwagon in early 2008 after a long 13 year stint in I.T Industry. You can follow him on twitter @trakin and Facebook. Arun’s Google+ Profile

5 comments

  1. @Philip Glad to know that L&T is a part of ur portfolio too:) infact, there is news that l&t has been shortlisted for a 10,000 crore project bid.Once that comes in its kitty, i cant even think of the positive effect it will have on the cashbooks in 2-3 years

  2. and that’s the reason why L&T is a part of my portfolio :D

  3. Well said Sriram, It is the buying that decides the profits that are going to be made.They kept increasing their stake at every low and waited for the things to get better

  4. Sriram Vadlamani

    You don’t make a profit when selling, you make it when you buy. That’s precisely what L&T did. Its intentions are clear from day one. Good to see someone make a profit out of Satyam.

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