Thursday, January 29, 2009

Why L&T should have stake in Satyam

Presidents Obama’s federal stimulus package of $ 815 Billion was cleared by the House of Representatives yesterday. It is expected that the Senate should clear it sometime next week. Of this amount about $ 500 billion plus would be spent by the US government on four key areas, all of which would have huge components of IT expenditure.

So why does it makes sense for L&T to have a stake in Satyam?

The single largest new investment in national infrastructure since the creation of the federal highway system in the 1950s is planned in the US from Government spending from the stimulus package.

In the coming months, by Q3 2009, the US would see development of Infrastructure to create jobs and revive the economy. The sudden upsurge in development of infrastructure would need skilled engineers and companies with the necessary tools to provide those services. There would be a shortage of people in the US and companies would be hard pressed to provide services.

L&T is a global company with extensive experience in infrastructure like roads and bridges. In today’s economy Information Technology is a tool to enhance efficiency in areas like designing, project management, GIS. Satyam would help strengthen areas in the L&T fold to form a strong product mix.

It has been commented upon by none other than Carlos Ghosn that the “frugal engineering skills” of Indian companies can affect cost savings of upto 15% in development costs.

If L&T can show effective cost savings for potential clients through the combination of L&T skills in Infrastructure and Satyam skills in IT, it would be ideally placed to reap business opportunities.

Thus despite all the negatives of Satyam at the present moment, the potential rewards are huge. If L&T does not acquire Satyam outright, it would atleast be able to leverage synergy by being the largest stockholder.

2 comments:

Anonymous said...

Why the US government, even the Indian government is looking at advancing its infrastructure. In fact, some argue that in the current economic downturn, it make perfect sense for the government (Indian) to invest heavily in building its infrastructure – roads, metros, train lines – so going by that thinking L&T might be looking at serving the domestic need as well!

But, the tricky part is why Satyam, especially if they have their own IT operations, L&T Infotech? Wouldn’t it make more sense for them to probably hire more resources or take in people for Satyam itself, than to get their hands dirty in the Satyam muck? After all, no one knows how deep is the Satyam scam. In the current times, when a Namuro is showing negative results thanks in a large part to their acquisition of Lehman Brothers, does it really make sense to buy a tainted company like Satyam, which investigations are revealing to be one of the most fraudulent companies on the face of this planet.

Anonymous said...

But it raises couple of questions in my mind..

1)Still the SEBI and CID investigations are ongoing, Don't you think L&T are in a wait and watch Sitiuation here. ??

2)Already Satyam started losing big customers and nobody will tolerate the uncertainity for too long.