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Satyam Shares Tumble in Mumbai After Reporting Losses

Satyam Computer Services Ltd. slumped the most in 10 months in Mumbai trading after the company reported two years of losses, reviving concerns about its ability to recover from India’s largest corporate fraud.

The shares fell 8.8 percent to close at 90.25 rupees in Mumbai trading, the stock’s biggest percentage decline since Nov. 25. Tech Mahindra Ltd., which bought Satyam in May 2009, dropped 5.2 percent to 752 rupees.

“It will take some time for Satyam to win back client confidence and compete,” Bhavtosh Vajpayee, a Mumbai-based analyst at CLSA Ltd. wrote in a note dated today.

Satyam, under investigation after former Chairman Ramalinga Raju disclosed in January 2009 he overstated assets by more than $1 billion, said lack of access to people and documents is hindering its ability to uncover all financial irregularities. Tech Mahindra is seeking to allay concerns of investors and clients as it prepares to start absorbing Satyam.

“Mahindra has definitely brought order, but the troubles are not over,” said Apurva Shah, an analyst at Prabhudas Lilladher Pvt. “Clients are still choosing other vendors over Satyam for their biggest deals. Satyam is going to face stiff competition.”

Destroying Evidence

The net loss narrowed to 1.25 billion rupees ($28 million) in the year ended March, from 81.8 billion rupees a year earlier, the Hyderabad-based company said. Sales fell 38 percent to 54.8 billion rupees, lagging behind estimates, said Hitesh Shah, an analyst at IDFC Securities Ltd.

In a 25-page announcement to the National Stock Exchange yesterday, Satyam said it’s still to detect all fund diversions.

Inability to access key former employees, previous auditors, those arrested by the law-enforcement agencies, and information stored on their computers were limiting the probe, Satyam said. Some information might have been deleted or destroyed, it said.

“We did bite off more than we could chew, but then you chew it,” Chairman Vineet Nayyar said after the company announced its first annual earnings in two years yesterday. “The fact is that this company is no longer a drain on Tech Mahindra. It’s cash positive. It hasn’t been for a long time, remember that.”

“Lost Faith”

Satyam will report quarterly numbers on Nov. 15 and then the process of absorbing Satyam will “typically” take a year to complete, Nayyar said. The company may become U.S. GAAP-compliant in about six to eight months, Nayyar said.

“Customers had lost faith,” said Ajay Parmar, an analyst with Emkay Global Financial Services Ltd. “They may not have wanted to work with a company with a past like Satyam’s. Once Satyam is with Mahindra, it’ll renew trust.”

The total number of customers at Satyam declined to 350 from 500, after the fraud, Chief Executive Officer Chander Prakash Gurnani said yesterday. The company started winning orders after the new management took charge and has added 44 customers since Tech Mahindra took control in May, Gurnani said.

Satyam, which delayed reporting its annual accounts after Raju’s disclosure, announced its audited earnings for the fiscal years ended March 2009 and 2010.

The merger of Satyam with Tech Mahindra will present legal and organizational challenges, Nayyar told reporters yesterday. While Tech Mahindra is largely focused on information technology for the telecommunications industry, Satyam “does a lot of other things,” including banking and insurance, Nayyar said.

The merger will require approvals from the boards of the companies and also from Indian courts, he said.

“We have been able to successfully dispose off most of the baggage from the past, except the class-action suits,” he said. “We are like a patient convalescing and raring to go, and it will take about two years for us to fully recover.”

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