Hyderabad: Software services provider Mahindra Satyam swung to profit in the three months ended 30 June from a loss in the preceding quarter as it earned more from its biggest clients and emerging markets.
The company, which chairman Vineet Nayyar has likened to a patient recovering from a near-death experience, declared that it remained on course for meeting a three-year deadline for return to health.
The Hyderabad-based company also said it expects to wind down its American depository shares (ADSs) programme in 2012, a move analysts expect to accelerate the operational merger of Satyam and Tech Mahindra Ltd, which bought it in April 2009. The shares currently trade on the US over-the-counter market.
Staying the course : Mahindra Satyam chairman Vineet Nayyar. Photo by Bharath Sai/Mint
Mahindra Satyam earned a profit after tax of Rs225.2 crore in the June quarter, compared with a net loss of Rs327 crore in the March quarter, when it had settled a class action lawsuit in the US. It had inherited the lawsuit from its previous avatar as Satyam Computer, whose founder B. Ramalinga Raju in January 2009 confessed to carrying out India’s biggest accounting fraud.
The profit came on revenue of Rs1,434 crore, up 4.3% quarter on quarter.
“Our results this quarter demonstrate our progression to the growth phase of our three-year transformation journey,” Nayyar said in a release. “Our relentless focus on market growth and margin expansion has yielded satisfactory results for yet another quarter. We are reasonably confident that we would capitalize on this momentum.”
Net profit for the three months ended June was more than double the Rs98 crore that Mahindra Satyam had announced earlier for the same period a year ago. Revenue rose 14.9% from Rs1,248 crore in the year-ago period.
The net profit beat the forecast of Rs134 crore in an analyst survey by Thomson Reuters IBES.
Satyam’s share price fell Rs3.20, or 4.31%, to close at Rs71.10 on the BSE on a day the benchmark Sensex slid 132.27 points, or 0.78%, to 16,857.91 points amid global economic worries. Satyam declared its earnings after the close of trading.
Nayyar, who in the previous quarter compared Mahindra Satyam to a patient being nursed back to health after being on a life-support system, has set a June 2012 deadline for the completion of the company’s recovery.
“We are now in the third year. We clearly want to capitalize on the market opportunity and hopefully move towards benchmark metrics on growth and profitability,” he said.
At the same time, he cautioned that “turbulent macroeconomic conditions can pose challenges to the business environment for the outsourcing industry”.
Raju’s 2009 confession to having cooked the books of Satyam Computer, which he founded in 1987, for several years to the tune of Rs7,136 crore sparked a flight of employees and a wave of client defections. Tech Mahindra bought it in an auction overseen by government-appointed directors and rebranded it Mahindra Satyam.
The company’s ADSs continue to be registered with the US Securities and Exchange Commission, obliging it to file annual and other reports with the market watchdog in line with US principles. The firm has been unable to meet the obligation after September 2008 because of the financial irregularities identified for earlier years, causing it to announce the winding down of its ADS share programme next year.
Such regulatory issues have also contributed to holding up the operational merger of Tech Mahindra and Satyam Computer.
“Since they are clearly stating that they are going to withdraw ADSs, clearly their strategy looks like they will merge Satyam into Tech Mahindra,” said Srishti Anand, information technology and telecom analyst at Mumbai-based Angel Broking Ltd.
For the quarter gone by, Mahindra Satyam’s earnings before interest, taxes, depreciation and amortization (Ebitda)—a key measure of operating profitability—was Rs210 crore, up 17.8% quarter on quarter. The Ebitda margin improved to 14.6% in the quarter, from 13% in the three months ended 31 March.
Chief executive officer C.P. Gurnani said Mahindra Satyam’s investments in the US were producing results and “traction in emerging economies is also very robust”. He cited “visible growth” in income from the company’s top 100 customers.
“Our growth engine is now warm,” he said. “It’s humming.”