Wednesday, January 7, 2009

Satyam Scandal and Non-U.S. Valuations

A company lots of people never heard of was a darling in some investor circles for large chunks of the last decade.

India's Satyam Computer Services is an Indian IT outsourcer which was right in the middle of some powerful themes. Outsourcing. Check. Low-cost Indian labor. Check. In the Septmeber quarter the company had more than 50,000 employees, $650 million in revenue, net profit of 20% and return on equity of 28%. They admitted last night that they have been cooking the books for years and even the cash on the balance sheeet had been inflated.
The company's ADR trades on the NYSE (SAY) and should open around $3 today. Part of the attraction of the stock over the years in addition to its robust growth rate was that it was never all that expensive. I guess there's a reason why many non-U.S. names trade at a discount. Even if it is not true, investors would love to believe that U.S. auditors would have caught this one.

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