While Mahindra Satyam Ltd has finally reported its accounts, investors still don’t have a clear picture of the company’s latest financial position. The firm has reported results for the years ended March 2009 and March 2010. Note that Satyam’s new owner, Tech Mahindra Ltd, got control of the firm only in mid-2009. As a result, the fiscal 2009-10 was a year of flux.

While the numbers released by Mahindra Satyam are useful, it would have been beneficial for investors to get a peek at the results for the fourth quarter ended March, if not results for the quarter ended June. The full-year results are a mix of the firm’s position before Tech Mahindra took over, the transition phase and its position after a few months of belt-tightening and efficiency improvements. The firm, however, refused to provide the exit rate, or the performance for the March quarter. So one would have to wait till mid-November, when it announces results for the June and September quarters, to understand the current revenue run rate and margins.

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Prima facie, the firm has done well to reduce employee strength from around 45,000 in FY09 to 27,000 in FY10. It has also cut its operating and administration expenses by as much as 57% or by 863 basis points as a percentage of sales. So, though revenue fell by 38% compared with FY09, earnings before interest, tax, depreciation and amortization (Ebitda) rose by around 5%. Ebitda margin stood at 8.3% in FY10, compared with 3.4% in FY09. With the full benefits of the employee rationalization likely to be reflected in the performance in recent quarters, margins are likely to be even higher.

Some brokers such as IIFL Capital and Religare Capital Markets had estimated FY10 margins in low single digits, and so the reported margin of 8.3% seems like a positive surprise. But on the other hand, some others such as Citigroup Global Markets had estimated the FY10 Ebitda margin at 10%. The annual revenue of $1.16 billion (Rs 5,208 crore) are almost exactly in line with street expectations. On the whole, the reported results aren’t majorly positive or negative.

But the lack of further details is likely to be viewed negatively. Apart from not sharing quarterly figures, the firm also refrained from commenting on metrics such as billing rates and employee utilization rates. Besides, according to an analyst with a foreign broker who attended the company’s conference call, one gets the sense that growth in revenue will be challenging in FY11 since the firm is still in the process of reversing the downward curve. While the company will benefit from operating leverage, revenue is likely to be sluggish and that is a negative surprise. This would require the company to grow revenue at a healthy rate in FY12 to justify current valuations. This could be the reason Satyam’s American depository receipts fell by around 8% in the early hours of trading on the New York Stock Exchange.

Graphic by Yogesh Kumar/Mint

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