This is crazy. What has happened in Satyam for me looks like an action replay. When Ketan Parekh was ramping up his’K10′ shares I was asked why am I not buying a particular ‘S’ software. It was flouted to me that a particular fast growing fund was buying its shares and the company was doing brilliantly. My take was simple – I was one of the geniuses who bought this share at Rs. 11 and then took a generous offer of selling it back to the management at Rs. 30. Now when the price was Rs. 300, I had no clue what was happening in that company. However, I assured them I would buy it at Rs. 3000 – my valuation skills are pathetic.
Then the same share went – well almost – to Rs. 3000, but I did not buy. Then it came down. Fast, as usual. It was now available at a market cap less than the cash and debtors in the books. I do not remember the numbers but let us say the cash and debtors was Rs. 330 crores and the MARKET CAP of the company was Rs. 240 crores. This was a great value buy…or so the argument went. I said, simple if it is a K 10 company (held by a ‘respectable’ mutual fund also) I did not trust anything about the company – the least the audited figures! Just to verify I did some research. A company with Rs. 330 crores in cash was delaying salaries, TDS, vendor payments, etc. so it was a kind of deja vu.
Today morning I heard about a friend who has to collect a couple of million rupees from Satyam (or now let us call it Asatyam) – and there are many people like him waiting for their payment for services rendered. God help him.
One question which I have been getting (writing this on 12th Jan, 09) is “Should we buy Satyam?”.
“If we buy at Rs. 40 how much can we lose in Satyam?” is the other question.
My take is as follows:
Taking a company in shit to a position of greatness is not easy. This should be left to Vallabh Bhansali, Deepak Parekh, Paresh Sukthankar, Karnik, ….etc. of the world. It is not a layman’s cup of tea. Too many things still remain uncertain. Will the foreign suits hurt the company? Will the other tech companies pull the clients and the employees away? Will the goodwill remain.
For a company to make money it has to get a lot of things right. Currently Satyam is not in good shape. If you had bought it at Rs. 400 and are now staring at Rs. 36 you might act differently. Is it worth putting Rs. 36 in a share which saw Rs. 6 a couple of days back is a difficult question to answer. Our office is full of 22 year olds who have bought Satyam from Rs. 90 right down to Rs. 35.
The second question is more easy to answer. How much can you lose in a Rs. 40 share? Maybe Rs. 20,00,000! A friend has invested in Satyam – he bought 20,000 shares at Rs. 100. His loss could be Rs. 20L! People ask “At Rs. 40 how much can I lose?” – what they mean is “Can I lose all the money I invest?” – the answer is YES. So if you invest Rs. 40 (i.e. you buy one share) you can lose Rs. 40. However if you buy 50,000 shares, you can lose it all. QED.
Do you know what happened to shareholders of GTB? of CRB? of Mazda Industries (Harshad), ‘K 10″ shares of Ketan Parikh? (or was it Ketan Parekh).
Do I need to say anything more?
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