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Mahindra Satyam To Acquire Stake In Comviva: Report; Financials

Mahindra Satyam is reportedly in talks with Comviva, a Bharti Group owned mobile value added services company, in a bid to acquire 20%-30% stake in the company, reports The Financial Express, citing people familiar with the development. However, both of the companies refused to comment on the matter. According to the report, the deal is expected to be worth Rs 400-Rs 500 crore, for which Pricewaterhouse Coopers has been appointed as an advisor. Last year, there were reports that Bharti was looking to sell its majority stake in Comviva, and had even appointed a merchant bank for the sale, with TCS and HCL being speculated as potential bidders. However, no stake sale took place.

Comviva claims to have more than 110 customers in 90 countries including Aircel, Idea Cellular, MTN, NTT Docomo, Uninor, Vodafone, Videocon, among others.

Financials

*According to the Registrar of Companies, the company reported sales of Rs 313.10 crore for the financial year ending 31st March 2011 (FY11), up 15.32% from Rs 271.5 crore reported for FY10. The company reported a profit after tax of Rs 42.4 crore for the fiscal, compared to a profit of Rs 39.2 crore reported for the previous year.

As of March 2009, Bharti Enterprises owned 75.03% in the company. The stake increased after the company’s Vice chairman, Sanjiv Mittal sold a large proportion of his shares (7.87% ordinary plus an undisclosed percentage of preferential shares) to Bharti and Sequoia Capital, which is also an existing investor in the company. Cisco is also an investor in Comviva.

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The company has been expanding into new African territories, and claims to have 250 million end users in the Ivory Coast, Guatemala and Tanzania. It’s also competing with Vodafone’s M-Pesa, the popular mobile money product in the region. In a recent interview, Comviva CEO, Manoranjan Mohapatra had informed that the company derives just 30% of its revenue from Bharti Airtel. Although in October 2011, it had signed a five-year deal with Bharti to provide VAS across Airtel’s operations in 16 African countries. He also claims that 35% of Comviva’s revenues comes from its mobile payments product Mobiquity, which has been deployed in 20 countries, while the rest comes from managed VAS  and services such as mobile music, gaming, messaging, voice applications, video applications and self care.

Why Mahindra Satyam? (Nikhil adds)

Comviva is primarily in the managed VAS services segment, providing its platform for powering services from telecom operators and other VAS companies, with a limited – if at all any – consumer interface. It is essentially an outsourced telecom service, and might have an overlap with Mahindra Satyam and Tech Mahindra’s telecom business. We wonder if this might lead to a creeping increase in stake in Comviva for Mahindra Satyam, if the deal does go through, and how it might impact a potential IPO for Comviva. It wouldn’t surprise us if the Bharti group eventually exits the business. Also, why isn’t Cisco looking at increasing its stake?

It’s interesting that Mahindra’s subsidiary company, Tech Mahindra, and Motorola jointly run a VAS company, CanvasM, which also offers services in the fields of mobile commerce, utilities and digital asset management, but frankly, CanvasM’s exact mandate has been rather vague, over the years. Mahindra Satyam will be reportedly merged with Tech Mahindra.

* Corrigendum:  An earlier version of this post quoted incorrect figures for the company’s finacials. The post has been updated with the correct figures.

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