New Delhi/Hyderabad: Software services firm Satyam Computer Services Ltd was “broken” when Tech Mahindra Ltd bought it in an auction on 13 April 2009, and began a repair job that Vineet Nayyar, chairman of the company rebranded as Mahindra Satyam, says is mostly done.
The Hyderabad-based company became the centre of India’s biggest corporate fraud investigation after founder B. Ramalinga Raju confessed in January 2009 to having mis-stated accounts to the tune of at least Rs 7,136 crore over several years. In a telephone interview before the second anniversary of the purchase, Nayyar spoke about the distance the company has covered on the way to rehabilitation and what still remains to be done. Edited excerpts:
On the two years after the acquisition
We have been able to do most of the repair job in the last two years. Clearly, considerable repair had to be done. There were legal issues, there were issues of overheads, there were issues of huge real estate, which was not needed but had been hired to give a feeling of opulence and growth. But I would say about 95% of those kind of problems are behind us now.
On the unfinished agenda
For example, this income tax case, which has come up, and we are stuck over it. I’m at times amazed by the irrationality of the action but then... (The income tax department has claimed about Rs 617 crore from Mahindra Satyam in dues dating back to the years when it was led by the management that reported to founder Raju.)
On consolidation and return to growth
There has been a repair job and there has been simultaneous consolidation. Essentially, action was being taken at two levels—one was doing the repairs, which I was personally leading, and the other was doing the growth aspect... to go out and compete with the market, which was being led by our chief executive, C.P. Gurnani. By and large, I would say we have had a fair amount of success there also.
Earlier the issue was ‘hey, keep the clients, let them not disappear, one way or another.’ The clients said ‘okay, we will give you a pilot, but we will not give you full confidence till we see something happening’.
Also See | The Satyam Saga (PDF)
Then came the second stage, and the third stage came of consolidation, and the fourth stage came of growth. And now we are in that fourth stage. I believe we are seeing an element of growth coming in, a return of confidence, so I think we are doing very well.
How does it relate to our strategy? I think it relates well to our strategy because when we bought this, we knew that this is not going to be an ordinary acquisition. This is going to be an acquisition full of challenges. It is a company which is broken and, therefore, undervalued. And so we went ahead and procured it. The hard work which came with it was anticipated. The fact that we got an asset which was very valuable in its intrinsic capabilities and qualities at a very reasonable price...was the upside.
On the company’s return to industry growth rates
We have always been very straight forward in that. That it is going to take three years at the very minimum. We started in June (2009, when the company was rebranded) so we have not quite completed our second year. At times, I’m amazed at the quantity of work which has been done. At other times, I think, ‘hey, so much more needs to be done to put it back on the growth path’. So I think now that most of the legal issues are behind us...we could go ahead and start doing the other work...So if that happens we have one year of runway at least to bring it back to normal.
On growth strategies
Strategies that are being adopted are pretty straight forward. We are working on the verticals (business segments), which we have. We are giving them a greater push. We have reorganized to make them more effective, more efficient, and we are seeing traction there. We are seeing traction in BFSI (banking, financial services, insurance), we are seeing traction in engineering, we are seeing traction in IMS (infrastructure management services), in enterprise solutions, so we are seeing a fair amount of traction coming up.
Yes, it has not reached that level which we wanted to. We are pushing at it. That is in terms of growth. On the other hand, we are doing internal repairs to make sure that Ebitda (earnings before interest, taxes, depreciation and amortization) starts growing, for containment of expense, to make people more efficient. So it’s at a number of levels we are working.
On integration of operations
We had stated the day we got it that the whole objective was to merge the two companies because we saw an incredible complementarity between the two companies and the sense was that Tech M can focus exclusively on telecom, as the biggest player in the telecom market in India.
Satyam was in the enterprise space, Satyam was in engineering, in banking and finance— sectors we were not in. Satyam’s 80% of revenue came in dollars, our 80% of revenue came in European currencies, the sterling. It was a perfect marriage in many ways.
What are our impediments now? Our impediment now is to get our accounts to US GAAP (generally accepted accounting principles) standards. That will take about six months. After that we will trigger it (integration). Since American shareholders are involved, SEC’s (Securities and Exchange Commission) approval needs to be taken, and SEC’s approval cannot be taken till such time as we are current in US GAAP.
You have to remember that once we trigger it, it is a journey which takes from six months to a year. Because we have to find consultants, we have to get valuations done, we have to work out swap ratios, and it has to be approved by the EGM (extraordinary general meeting) and the high courts of the two states— Andhra Pradesh and Maharashtra.
In any case it will be three years (since the acquisition) by the time it takes place. We are already two years done. I said it will take us about—from the time the US GAAP is current—about six months to a year. We are really looking at three to three-and-a-half years when in fact, legally, we have a merger.
On settlements reached with US investors in a class action suit and with the SEC on accounting issues
We are a technology company and so we want to get all the legal issues behind us so that we can get back to business as usual. I mean, this is the first time we are being exposed to this kind of litigation. In all my career in IT (information technology), we never had these kinds of issues. We want to get this overhang out of our way.
On the likely return to business as usual
I think 90% of it is behind us though I must admit that this income tax (dispute) is something which we had never thought would possibly happen.
But that’s the nature of the animal, I suspect, that the unexpected do happen in life.
On any likely pitfalls
I hope not. By the nature of your question, I really can’t answer it because, ...it’s like walking across the street and being hit by a truck...We do believe that other things have been looked after. All perceptible and foreseeable obstacles, I do believe, have been removed one by one.
Graphic by Sandeep Bhatnagar/Mint