Hyderabad: Information technology services provider Mahindra Satyam, the rebranded Satyam Computer Services Ltd, on Wednesday posted a fivefold year-on-year rise in net profit for the third quarter, largely driven by the depreciation in the rupee and income from fixed deposits and mutual funds.
A file photo of Mahindra Satyam Headquarter, Hitech City, Madhapur Hyderabad
Profit after tax for the three months ended 31 December surged to Rs 308.43 crore from Rs 58.91 crore. Fluctuations in foreign exchange contributed Rs 66 crore to the consolidated revenue of Rs 1,718.8 crore, which rose 34%.
Satyam’s results beat Street estimates. Analysts had forecast a net profit of Rs 220 crore, according to Thomson Reuters.
“Viewed against the backdrop of the euro crisis, the uncertainty in the US, this performance is a cause of considerable satisfaction to us,” Vineet Nayyar, chairman, Mahindra Satyam, said at a press briefing. “We are now pretty close to the industry standards of Ebitda (earnings before interest, taxes, depreciation and amortization). So, in terms of profitability, I would say that we are reaching normalcy and are pretty close to be at par to the industry standards.”
Ebitda margin in the latest quarter expanded to 16.2% from 3.56% a year earlier.
Nayyar, who had earlier compared Satyam with a patient that had to be nursed back to health, said it is now poised to compete with leading information technology companies. “We now look forward to the next phase where we will move from this situation of reconstruction, reinvigoration, to a trajectory of growth which will simulate that of the best in the industry, I hope,” he said.
But Nayyar also warned of challenges ahead that could come in the way of the company’s growth. “The global economy is yet to stabilize and market conditions remain unpredictable. We are seeing longer revision cycles from customers, especially in large projects,” he said.
Satyam Computer Services was hit by a scandal after founder B. Ramalinga Raju confessed to an accounting fraud to the tune of Rs 7,136 crore in January 2009. Tech Mahindra Ltd subsequently bought the company in an auction overseen by the government-appointed directors and rebranded it Mahindra Satyam.
The company declared its financial results after market hours on Wednesday. Satyam’s scrip rose 3.81% to Rs 76.25 on BSE, outpacing the 0.62% rise in the benchmark Sensex to 17,300.58 points.
Banking, financial services and insurance, or BFSI, one of the key verticals of the company, contributed 15% to its revenue.
Sidhant Rastogi, a manager with Zinnov Management Consulting, said though client contribution to Satyam’s revenue was somewhat stagnant, the company had decreased its contracts in the time and material category.
“It is more healthy to have time and material because they are traditionally long term and it shows they trust you,” he said. Also, “the revenue from onsite locations has decreased by 8% from last year, which is a healthy trend that shows they are able to do more work offshore and increase their profitability.”
Hansa Krishnamurthy Iyengar, an analyst at Ovum, also said Mahindra Satyam had done well. “They’ve had renewals and new wins over the quarter (as well as some work sub-contracting in larger deals), which has helped in boosting revenue,” Iyengar said. “However, one needs to consider the impact of the exchange rate here as the forex rates have positively impacted all the major Indian vendors.”