Satyam net rises, firm on course to meet objectives

Satyam net rises, firm on course to meet objectives

Hyderabad/Bangalore: Software services provider Mahindra Satyam on Monday said it is on course to meeting its business objectives at the midpoint of a three-year deadline the company set for itself, as net profit more than doubled in the three months ended 31 December from the preceding quarter.

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The rebranded Satyam Computer Services Ltd’s consolidated net income rose to Rs58.9 crore in the fiscal third quarter from Rs23.3 crore in the three months ended 30 September. Revenue rose 3% to Rs1,279 crore in the same period, said the firm, which hadn’t reported a quarterly break-up of its restated results for the fiscal to March 2010.

Satyam was acquired by Tech Mahindra Ltd, the computer services arm of Mahindra and Mahindra Ltd, in the troubled aftermath of founder B. Ramalinga Raju’s January 2009 confession that the company’s accounts had been doctored to the tune of at least Rs7,136 crore over a period of several years during which he was at the helm. Satyam Computer was India’s fourth biggest software services firm when India’s largest corporate fraud came into the open, causing client defections and an employee exodus.

“I have consistently said we are on a journey of three years," chairman Vineet Nayyar said, recalling the June 2009 business goals set by the company. “We have set for ourselves a certain trajectory. I am very happy to inform you that we are still on that trajectory."

Chief executive officer (CEO) C.P. Gurnani spelt out the company’s broad objective as a return of Mahindra Satyam’s “operating matrix" to the level of its industry peers.

“We realize that there is a lot of work to be done to deliver the kind of operating matrix you would want us to deliver, but we continue to work very hard," Gurnani said.

A higher employee utilization rate—an indicator of billing efficiency—and higher income from Europe helped the Hyderabad-based company counter a Rs53 crore impairment charge it took at a subsidiary, according to Nayyar. Excluding the one-time charge, net profit would have risen 254% on a sequential basis to Rs112 crore, he said. The utilization rate rose to 73.5% in the December quarter from 71% in the preceding three months. The share of Europe in the company’s revenue rose by around two percentage points to around 30%.

The company’s earnings before interest, tax, depreciation and amortization—a key indicator of operating profitability—was Rs82 crore. Its margin improved to 6.41% in the quarter gone by from 5.49% in the preceding three months. Headcount rose to 28,832, a net addition of 764, during the quarter.

“Our overall sense is that the worst is over for Satyam," said Nitin Padmanabhan, an information technology analyst at Indiabulls Securities Ltd. “The margins are up, and for the first time they have a net addition in employee count this quarter. Utilization has also gone up by 300 basis points."

A basis point is one-hundredth of a percentage point.

Still, Mahindra Satyam’s net profit fell short of the Rs68.92 crore forecast by StarMine SmartEstimates, which places more weight on recent predictions by top-rated analysts, Reuters reported.

The company’s shares, however, rose 11.66%, or Rs6.75, to Rs64.65 at the close of trading on a day the Bombay Stock Exchange barometer, the Sensex, gained 473.59 points, or 2.67%, to 18,202.20.

“Broadly, people will not be worried about Satyam because the margins have to go up, any way you look at it," said Padmanabhan. “They are bound to get incremental deals going forward. The only two concerns right now are if the 3% revenue run rate is sustainable, and the high attrition rate." At 25%, attrition is stabilizing or decreasing, and “coming down month by month", said Gurnani.

He indicated that the integration of Tech Mahindra and Satyam Computer operations is still some way off.

“For any merger process to be initiated where there has been a history like this, you need to get tacit approval or at least a symbolic go-ahead from some of the (investigating) agencies," he said. “And currently, the agencies that have been investigating this (fraud at Satyam), they put us on a hold pattern."

Also on Monday, the company named Vasant Krishnan, a senior vice-president at Mahindra and Mahindra, as its chief financial officer (CFO). Krishnan replaces S. Durgashankar, who will relocate to Mahindra and Mahindra.

Durgashankar led the effort to restate the company’s accounts and bring order to its financial system after the crisis.