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Home / Companies / Company-results /  Mahindra Satyam’s Q4 profit falls 15%; firm announces 30% dividend

Hyderabad: Software services provider
Mahindra Satyam
’s net profit fell 15% in the fourth quarter because of a higher tax burden, the company said on Thursday.

Net profit fell to 454 crore in the three months ended 31 March from 534.21 crore a year ago, the company said. Profit was dented by 75 crore of tax the company had deferred paying in the previous fiscal.

Revenue rose 16.2% to 1,936 crore from 1,665.84 crore.

Tech Mahindra Ltd purchased Satyam Computer Services Ltd in an April 2009 auction overseen by government-appointed directors after the company had fallen into a crisis following founder-chairman B. Ramalinga Raju’s admission that he had misstated accounts to the tune of 7,136 crore over several years. It was later rebranded by the new owner as Mahindra Satyam and returned to profitability.

“Looking at where we are now, there is an element of satisfaction," chairman Vineet Nayyar said.

For the first time after Tech Mahindra took over Satyam, Mahindra Satyam declared a 30% dividend for its shareholders. “To symbolize the completion of our journey, we are announcing a dividend this quarter for the previous year," Nayyar said. “This is symbolic. Now we are fully fit."

For the full year ended 31 March, Mahindra Satyam’s net profit declined 10.9% to 1,164 crore from 1,306.06 crore in the previous year. Revenue gained 20.3% to 7,693 crore.

“Overall, the metrics were more or less in line with our expectations but on the operational front, margins declined by about 145 basis points quarter-on-quarter to 20.1% due to subdued revenue growth," said Ankita Somani, an analyst at Mumbai-based Angel Broking Ltd. “We wait for management clarity on decline in operational margin as the company continued to deliver operational exuberance with decent volume growth since the last five quarters."

Satyam Computer’s shares fell 0.6% to 109.20 on a day BSE’s benchmark Sensex rose 0.2% to 20,247.33 points.

In the March quarter, the company wrote back 134 crore it had previously earmarked for its subsidiaries after the Satyam scandal.

“Because of the fact that everything was unknown, out of prudence, provisions for losses were made in subsidiaries," chief financial officer Vasant Krishnan said. “As our subsidiaries have become profitable, and we have complete control over financials and business models of our subsidiaries, provisions for these losses are no longer required."

The company added 43 new accounts in the quarter, including one large multi-year contract worth over $50 million from a paper and packaging company based in the Asia Pacific region. Chief executive officer C.P. Gurnani did not name the company, citing a confidentiality agreement.

While Satyam is chasing large deals, its win ratio is a “lot lower" than the industry average at the moment, said Gurnani, adding he has taken measures to augment its sales force. “We are choosing our battles a little better. There is clearly a desire and we are working on it," he said.

Mahindra Satyam management sounded a warning on the impact of proposed legislation in the US that seeks to enforce a stricter visa regime for information technology (IT) professionals. “Even a watered-down version will have impact all across the IT industry which will be fairly significant," Nayyar said. “We will have to live with it and respond appropriately."

Mahindra Satyam is due to merge operations with Tech Mahindra, the boards of the two companies announced on 21 March last year. The union has been stuck in the Andhra Pradesh high court, which clubbed the merger petition with two separate petitions—one challenging the merger swap ratio of two shares of Tech Mahindra for every 17 Satyam shares, and the other filed by some unsecured creditors claiming repayment of 1,230 crore lent to Satyam Computer.

The proposal for amalgamation has been cleared by various bodies including the Competition Commission of India, BSE, the National Stock Exchange and the Bombay high court. Following the delay, the boards of the two companies extended the validity of the merger proposal by six months till 30 September, on 25 March. The Andhra Pradesh high court has reserved the matter and is expected to pass a final order in June after the court vacation.

“We have reached the penultimate stage when it comes to the merger," Nayyar said. “Hopefully, the two companies will be one," he added. Nayyar said the company expects the Andhra high court to pass a judgement favouring the merger in the first two weeks of June. The scheme of amalgamation once passed, would be effective from April 2011 as per the terms of the merger.

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