Mahindra Satyam reports loss after settling lawsuit

Mahindra Satyam reports loss after settling lawsuit

Hyderabad: Software services firm Mahindra Satyam reported a fourth quarter net loss on Monday after accounting for the settlement of a class action lawsuit with US investors, but said it remains on the path of recovery and growth after being laid low by India’s worst corporate fraud in its previous avatar as Satyam Computer Services Ltd.

Chairman Vineet Nayyar likened the company to a near-death survivor.

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The Hyderabad-based company had a consolidated net loss of 327 crore in the three months ended 31 March, compared with a profit of 58.9 crore in the three months ended 31 December.

The loss came on consolidated revenue of 1,375 crore, which rose 7.5% on a sequential basis. Growth was driven by media and entertainment and manufacturing segments, the company said.

Mahindra Satyam said the settlement of the class action lawsuit in February, when it agreed to pay $125 million ( 567 crore today) to US investors, had been responsible for the loss. Profit after tax and before the exceptional payment would have been 245 crore.

Satyam Computer fell into a crisis and was acquired by Tech Mahindra Ltd, an arm of the Mahindra group, after B. Ramalinga Raju, its founder, in January 2009 confessed to having misstated accounts to the tune of 7,136 crore, triggering India’s biggest corporate fraud investigation.

At a news conference, Nayyar compared Mahindra Satyam, which has set a three-year turnaround deadline that ends in June 2012, to a patient recovering from a near-death experience.

“For about eight months this company was on a life-support system," he said. “Now it has been nursed back to health. Can it do a marathon immediately? Perhaps not... Please view the results in the context of the journey. By the end of three years, I am confident, and so is the entire management team, that we will be ready for the marathon."

The resolution of the class action lawsuit removed a key hurdle to Satyam’s merger with Tech Mahindra, which had bought a 51% stake in the company in April 2009 for 2,889 crore following a government-managed rescue plan.

In another step in its rehabilitation, the company in April agreed to pay $10 million to settle US probes into the accounting fraud.

Mahindra Satyam is targeting an operational merger by April-May next year, said Nayyar, noting that the process needs approval from two high courts—of Andhra Pradesh and Maharashtra.

The company is also in talks with the US Securities and Exchange Commission on the details of the merger process, he said.

A merger would be the “best way out" for the company to scale up to a combined revenue of $2 billion and compete with bigger rivals, said Srishti Anand, an analyst at Angel Broking Ltd in Mumbai.

The company had an operating profit of 134 crore in the fourth quarter. Its operating margin doubled to 13% in the fiscal fourth quarter from the preceding quarter.

“The operational results make me believe the company can bounce back by next year," Anand said.

The sequential increase in revenue and operating margin is a sign of stability in Satyam’s client base and an indication that “restructuring is on track", said Abhishek Shindadkar, an analyst at ICICI Securities Ltd. “You have to look at Satyam from a long-term strategy. There would be some intra-quarter volatility (in earnings). But from what the management has said...they have settled most of the one-offs."

Investors weren’t pleased with the results. Mahindra Satyam shares fell 3.39% to 74.15 before noon on Monday even as the Bombay Stock Exchange’s Sensex was down 1.2% at 18,101.47. Mahindra Satyam’s shares ended at 73.55, down 4.17%, while the Sensex closed at 17,993.33.

The company added 12 customers in the March quarter, taking its client count to 230. The employee attrition rate declined to 22% in the fourth quarter from 25% in the third quarter. It reported a net addition of 434 employees in the quarter to take its head count to 29,266 at the end of March.

“This year has been a very satisfying one, given the impressive progress we made on various fronts such as minimizing the legal overhang, fortifying governance mechanisms, and restoring customer and employee confidence," said Nayyar in a statement.

Year-ago quarter figures were not provided because Mahindra Satyam has been exempted by the Company Law Board from disclosing quarterly numbers for the period from 31 December 2008 to 31 March 2010.

In the full year ended 31 March, the company had a net loss of 147 crore, widening from 124.6 crore in the previous year. Full-year revenue fell 6.1% to 5,145 crore.

“At the end of the second year of our three-year journey, we are very pleased with our achievements so far," chief executive C.P. Gurnanisaid. “We are acutely aware of the challenges that lie ahead in this transformation journey. Accelerating profitable growth and building capability to deal with the scale are key focus areas."