Hyderabad/New Delhi: At the corporate headquarters of Satyam Computer Services in Hyderabad’s Hitec City, founder and former chairman B. Ramalinga Raju’s eyrie-like office remains empty. As does that of his protege, who became the company’s chief executive after Raju confessed in early 2009 that he had fudged the information technology (IT) services firm’s books to the tune of at least Rs 7,000 crore, and then resigned. All that is known of Ram Mynampati is that he resigned from the board and moved to the US. As for Raju, he is in jail awaiting trial.
Two years to the day after Tech Mahindra Ltd acquired Satyam on 13 April 2009, no one at the company is thinking about the past. At least not if they can help it.
“No one discusses the past these days in office…Raju doesn’t come up in conversations unless some fresh trouble related to the past erupts,” says Hari Thalapalli, chief marketing officer and chief people officer of Mahindra Satyam, as the firm is now known. Thalapalli is one of the few senior employees to have survived the fraud, and the acquisition. He has been with Satyam for 11 years.
Instead, everyone’s focus at Satyam is on growth. “We have to reinstate Satyam’s past glory,” Thalapalli says.
That will take some doing. In the three months ended 31 December, Satyam’s revenue grew 3% to Rs 1,280 crore from Rs 1,242 crore in the three months ended 31 October. Net profit grew 153% to Rs 58.9 crore. On both parameters, Satyam lagged HCL Technologies Ltd and Cognizant Technology Solutions Corp., both companies that had once trailed it in terms of size. For the three months ended December, HCL’s revenue grew 4.9% to Rs 3,888.4 crore and net profit 20.7% to Rs 399.7 crore on a quarter-on-quarter basis. Worse, Satyam’s profitability, measured as a proportion of its operating profit to revenue and expressed in percent, was 6.4% for the quarter. The IT services industry’s bellwether Infosys Technologies Ltd had a corresponding operating margin of 30.2% for the quarter.
And once, not too long ago, Satyam would have considered itself a peer of Infosys.
“There’s another year, year-and-a-half to go before it reaches full-fledged, industry performance standards,” said S. Durgashankar, who until the end of February served as chief financial officer of Mahindra Satyam. Durgashankar, who has relocated to Mahindra and Mahindra Ltd after his term ended, was responsible for bringing order to Satyam’s financial system after Tech Mahindra bought the company.
“In the first year, I think there was a reduction of revenue of around 40% or so compared to the previous year, and despite that you see the company was Ebitda-positive before exceptional items. But of course, the number is much smaller in comparison with the industry,” Durgashankar said. Ebitda stands for earnings before interest, tax, depreciation and amortization.
Customers deserted the firm in the wake of Raju’s confession, with banks and financial services companies leading the exodus, according to A.S. Murty, now chief technology officer at Mahindra Satyam and formerly interim chief executive (the compliance needs of these companies is usually higher).
“This is what hit them the hardest,” says Gaurav Gupta, principal and country head of consulting firm Everest Group. Worse, the fraud at Satyam came to light a few months after the global financial meltdown and the resulting economic crisis. Even as its peers were fighting the slowdown and coping with customers who wanted more for less, Satyam was combating issues of a different nature. When the growth returned, says Gupta, banks and finance companies were among the first to recover and “Satyam wasn’t prepared to grab the opportunity”.
Its ability to bid for new contracts was limited by the fact that its financial accounts were still being restated after the fraud; most customers require bids to be accompanied by audited financial statements. Indeed, it wasn’t till September last year that Satyam released its first set of numbers.
The company was trying to repair things at one end and grow at the other, says chairman Vineet Nayyar. The first stage of the recovery was to keep customers in the fold, he says. The second was to set things right. The third was one of consolidation. And the fourth, growth. “Now we are in that fourth stage,” Nayyar says.
Some of Satyam’s growth is coming from cross-selling its business software solutions to parent Tech Mahindra’s customers. Some customers who had stopped working with Satyam are coming back, says Atul Kunwar, the US-based president of business development and customer relationships at Mahindra Satyam.
Kunwar declined to provide details of these customers, but added that the company is also being considered by customers who would have previously not done so.
Much like customers, some former employees who had deserted Satyam in those dark days in the winter of 2009 are now returning. Thalapalli says at least 10 senior executives want to return, but, like Kunwar, declined to give details. One employee who has returned is Sriram Papani, who now heads the company’s enterprise business solutions.
Before the fraud, there were 50,000 employees at the firm; 10,000 left soon after. The company is now in an aggressive hiring mode and has close to 30,000 people. For the first time in three years, it has hired 3,000 freshers from engineering schools. For a company that all but went under in early 2009, that is something.
Anil Penna contributed to this story.