Hyderabad/Bangalore: Improved billing rates and a better offshore mix helped Satyam Computer Services Ltd, India’s fourth largest software exporter, to perform better than its larger peers to post a 29% annual growth in third quarter profits to Rs433.63 crore.
Revenues for the three months to December expanded 32.2% to Rs2,195.56 crore compared with the year-ago period. On a sequential or quarter-on-quarter basis, the net profits were up 6%, while revenues grew by 8.1%, in line with analyst expectations.
Bolstered by the performance, Satyam—which serves clients such as Nissan and Telstra—upgraded its full-year revenue guidance at $2.119 billion (Rs8,348.86 crore) to $2.122 billion, implying a growth rate of 45-45.2% in dollar terms compared with the previous guidance of revenues between $2.07 billion and 2.08 billion. For the quarter to March, Satyam expects its revenues to grow between 5.6% and 6.1% to between $594.4 million and $597.3 million.
Going strong: Satyam chairman B.Ramalinga Raju said “several key strategies were bearing fruit.”
Results were in line with expectations, an analyst said. “Satyam has shown a significant improvement in their billing rates, which none of the other top vendors have shown,” said Harshad Deshpande, research analyst with Religare Securities Ltd.
Calling the December quarter one of the strongest quarters for the company, chairman B. Ramalinga Raju said “several key strategies to enhance the portfolio of services and strengthen the company’s position as a provider of business transformation services were bearing fruit.”
In a bid to bolster its ability to provide the entire spectrum of services to global customers, the company has entered into a definitive agreement to acquire a Chicago-based management consulting firm, Bridge Strategy Group, for $35 million in an all-cash deal.
Raju said Satyam would make an initial payment of $19 million while the balance would be paid over the next two-and-a-half years.
Bridge Strategy had annual revenues of $17 million.
Having made acquisitions of around $100 million in the last couple of years, the company would continue to look actively for global acquisition opportunities, Raju said.
“The results were good and there were no negative surprises. Satyam results were among the best for the top-tier companies,” said Harit Shah, analyst at Angel Broking Ltd.
The sequential volume growth of 9% was quite impressive and so also the 2% quarter-on-quarter improvement in billing rates.
Satyam had cash reserves and surplus of Rs6,803.58 crore as of end-December.
“We could improve our margins by 164 basis points owing to increased productivity, resulting from higher utilization, increased billing rates and offshore shift,” said Srinivas Vadlamani, chief financial officer, Satyam. One basis point is one-hundredth of a percentage point.
Satyam increased the share of work done offshore to 52.11% in the quarter under review from 50.41% in the September quarter.
“We could increase our offshore billing rates by 2.27% sequentially and 6.82% year-on-year. Our onsite billing rates improved by 2.36% sequentially and 6.82% (annually),” Vadlamani said.
Attributing the fall in Ebidta, or operating profit margins, in the December quarter at 21.46% from 24.68% a year ago mainly to rupee appreciation, Vadlamani said the company could offset the rupee appreciation impact to a large extent by way of improving billing rates, shift to offshore and better utilization of resources. Ebitda is short for earnings before interest, tax, depreciation and amortization.
Citing analyst reports, Vadlamani said the rupee may not further appreciate steeply during the ongoing quarter. The company’s guidance for the fourth quarter and full year was based on estimates of the dollar trading at Rs39.30.
On the outlook for this calendar year, Ram Mynampati, Satyam’s president, said close to 85% of the players in the US have indicated a 5-6% increase in their technology budgets, while around 15% were yet to announce their plans.
“We expect to get a clear picture on technology budgets by various players in the US market in the next few weeks, which should help us arrive at a business outlook for next fiscal,” he said.
On the large customer deals, he said Satyam’s pipeline of large contracts were nearly one-and-a-half times larger than those pursued in the last fiscal year. “We could bag four large deals in the last quarter with a minimum size of $50 million. We are currently pursuing over 20 such large deals in the markets of the US, Europe, Middle East (West Asia) and Asia Pacific,” he said.
Shares of Satyam fell to a 52-week low of Rs330 each in intra-day trade on the Bombay Stock Exchange, or BSE, in a volatile market before recovering to close at Rs371.40, almost flat from Friday’s closing price. Larger rivals Tata Consultancy Services Ltd (TCS) and Infosys Technologies Ltd also hit a yearly low in intra-day trades on Monday, a day when the Sensex, BSE’s benchmark index, dropped 7.41% to close at 17,605.35 tracking a global slump in markets due to fears of recession in the US. The BSE information technology index shed 5.73%.
Shares of Infosys closed at Rs1,390.20 each, 5.06% lower than the previous close., while TCS ended trades at Rs835.90, down 7.57%. Wipro shares lost 3.41% at Rs439.80 each.