Hyderabad: Computer services company Mahindra Satyam on Thursday reported a 74% decline in net profit for the quarter ended 31 December after paying $68 million (Rs.294 crore charge on the balance sheet) to settle claims by Aberdeen Asset Management Plc.
Net profit fell to Rs.80 crore in the three months ended 31 December from Rs.308.43 crore in the year-ago period, said the company. Revenue increased 12.9% to Rs.1,940 crore.
“With the settlement of the Aberdeen suit, the external litigation issues now stand concluded, freeing us to focus even more on the business-ready solutions for our customers,” chairman Vineet Nayyar said in a statement.
Mahindra Satyam said in December that it entered into an agreement to settle claims brought in a London court by Aberdeen Global and 22 other funds managed by Aberdeen Asset Management and its units. The claims included allegations of fraudulent misrepresentation said to have been made by the former management of Satyam Computer Services Ltd in London and relied upon by the claimants’ investment manager and communicated in meetings said to have taken place in London. Hyderabad-based Satyam Computer Services was rebranded Mahindra Satyam after it was bought by Tech Mahindra Ltd in an auction overseen by government-appointed directors in April 2009. In January of that year, Satyam plunged into a crisis after founder chairman B. Ramalinga Raju confessed to having misstated accounts to the tune of Rs.7,136 crore, triggering India’s biggest corporate fraud investigation.
Mahindra Satyam, which still trades on stock exchanges as Satyam Computer Services, and Tech Mahindra have announced that they would merge their operations—a proposal cleared by the Competition Commission of India, BSE, NSE and the Bombay high court. It is still pending in the high court of Andhra Pradesh, which has clubbed the merger petition with two separate petitions—one challenging the merger swap ratio and the other filed by 37 companies that are claiming Rs.1,230 crore lent to Satyam Computer during the time Raju was heading the company.
Nayyar said the merger was in the “penultimate stage” and expressed confidence that the firms will operate as a combined entity in the near future. “In fact, de facto, we are already doing that. We have made very good progress in terms of integration at multiple fronts like system consolidation, process and policy alignment. Our joint go-to market models are evolving with our customers needs. All in all, in terms of various litigations pertaining to the merger, we remain optimistic about the final outcome,” Nayyar said.
Income from Mahindra Satyam’s biggest market, North America was relatively lower compared to the previous quarter while the European market saw a “leap” in revenues, according to chief executive officer (CEO) C.P. Gurnani. “The indication here is that it is not that Europe has rebounded completely. It just tells you that the cycles of this business in US is that typically most of the large customers tend to take a forced shut down during this period. Many of our large customers have decided that this is the time they would declare a kind of a holiday,” Gurnani said.
North America accounted for 54% of Mahindra Satyam’s revenue while the European Union contributed 24% to the income. The management said the trend will continue.
Nayyar said the global economy is showing “some positive signs” but advised that customers are going to be cautiously optimistic.
“These measures have supported modest pick up in growth but full recovery will be a long and slow process especially in the euro zone. As we go ahead we expect our customers to be cautiously optimistic...Our expectations are that our customers will invest more in technology this year compared to last year,” Nayyar said. “Decision making cycles would continue to be prolonged as in 2012 as customers closely monitor the market before committing spends.”
“Operationally, the results look good,” said Ankita Somani, IT and telecom analyst at Mumbai-based Angel Broking Ltd. “On the revenue, operating margin front and all other parameters, the results were higher than our expectations. The only disappointment came in the bottomline but that is fine as all outstanding litigation overseas has been resolved,” she said.
Satyam Computer shares fell 2.32% to Rs.119.90 on a day the BSE’s benchmark Sensex declined 0.55% to 19,894.98 points.
The company had cash reserves of Rs.3,311 crore on its books at the end of December, which CEO Gurnani said would be utilized to make strategic acquisitions for the firm in engineering services, BFSI, or banking, financial services and insurance, and healthcare space. “We are not shy of looking at an acquisition… M&A (merger and acquisition) is part of my strategy and it will consume some cash,” Gurnani said. “I have already indicated there will be more in Europe, there will be more in Australia,” Gurnani said.