Hyderabad: Satyam Computer Services Ltd, India’s fourth ranked software services vendor by revenues, has reported lower than expected profit in the first quarter (Q1) of fiscal 2008, in pattern with results of itsbigger peers, all of which have been struggling to manage the impact of a strongly rising rupee against the dollar. Indian tech firms bill most of their services in the US currency.
The Hyderabad-headquartered company said it had made a net profit of Rs378.32 crore in the April-June quarter, just 6.8% more than the year-ago quarter—the slowest profit expansion in three years. On a sequential basis, referring to growth in the just gone by quarter over the previous three months to 31 March, the profit fell 3.9%, marginally better than Infosys Technologies Ltd’s sequential profit decline of 5.7%. Satyam’s revenues for the June quarter were Rs1,830.19 crore, a year-on-year increase of 26.8% and sequential growth of 2.9%.
The rupee’s appreciation contributed to a negative impact of 2.3% on earnings before interest, taxes, depreciation and amortization (Ebitda), a measure of the operational profitability of a business; visa expenses resulted in a 1% contraction, and other charges, including subsidiary losses, reduced Ebitda by 0.7%, totalling to an impact of 4%, Satyam’s chief financial officer V. Srinivas said.
“We could successfully make up the impact to an extent of around 3.36% and restricted the impact on operating profit margins (or Ebitda) to 0.64%. This was achieved through various operational efficiency measures such as better billing rates (0.85%), improved off-shoring (0.4%), better utilization (0.45%) and lower costs (1.4%),” Srinivas told Mint.
The profit missed analyst expectations. It was expected to report net income of Rs396 crore on sales of Rs1,810 crore, according to the median estimate of 11 analysts surveyed by Bloomberg . “Despite the relatively superior operational performance, the net profit of the company was impacted primarily on account of lower other income and a higher tax incidence,” said Hitesh Agrawal, vice-president of research with Angel Broking Ltd.
Satyam cut its rupee-based annual earnings forecast, after the currency’s 9.7% gain against the dollar this year dented profit from the US, its biggest market. Earnings per share are expected at between Rs24.14 to Rs24.46 for the year to 31 March 2008, Satyam said, falling behind its April estimate of Rs25.32 to Rs25.73 a share. The company forecast that full-year sales will range between Rs7,853 crore and Rs7,942 crore, compared with the previous range of Rs7,793 crore to Rs7,916 crore.
Stating that Satyam had hedged $750 million (Rs3,023 crore), which translates roughly into two quarters’ revenues, Srinivas said that based on the unprecedented appreciation of the rupee, the firm decided to cover 75% of dollar inflows as against its normal policy of covering 50% of such inflows.
Shares of Satyam fell 1.81% after the results, but recovered to close at Rs477.85 on BSE on Friday. Citigroup analysts Surendra Goyal and Hitesh Shah retained a buy rating on the stock with a 12-month target of Rs570.