Satyam’s Q3 numbers are bad, but not catastrophic

Satyam Computer Services has shared the disclosures it made earlier to bidders with its public shareholders. Tech Mahindra had then emerged as the successful bidder and subsequently made an open offer to Satyam’s shareholders.

Earlier, these disclosures were not part of the open offer document. But Sebi asked Satyam to make public its disclosures to ensure the public had the same level of information as its bidders. Till now, Satyam’s shareholders had no idea of how the company was performing, after the September quarter results. Finally, public shareholders have been given some preference; till now they had taken a backseat while the government worked to salvage the company. At first glance, the financials show that Satyam is not in a good shape but that is old news. What is new is that its numbers look better than what many feared.

Cash balance

Satyam’s cash balance is Rs 373 crore as of March 31, 2009 which tallies reasonably with the cash figure of Rs 320 crore mentioned in the confessional statement. That is the good news, the bad part is that its stated cash figure of Rs 5,361 crore was a cruel joke on shareholders.
December 2008 quarter financials

• Note that the disclosure pertains to consolidated financials. Comparisons are with numbers stated by Satyam’s earlier management and should be considered as such.

• Satyam’s sales in the December 2008 quarter was Rs 2,414 crore, up 10% over a year ago. It is down by 14.4% on a sequential basis. Former chairman Ramalinga Raju had pegged the September 2008 sales at Rs 2,112 crore in his confession to shareholders. If that is true, sales have grown by 11% on a sequential basis, which seems on the higher side.

• Expenditure has grown by 19.4%, partly due to higher employee costs and software related expenses. As a result, its operating profit suffered. Its OPM fell by 670 basis points to 14.7%. The drop is steep but not as calamitous as it appeared from Raju’s statement, where he pegged the operating profit at Rs 61 crore. The December 2008 OP was Rs 350 crore.

• Other income is negative in the quarter, apparently due to forex related losses.

• Net profit is Rs 160 crore, down by 63% over a year ago. This is bad but again it could have been worse.

• Note that these statements are unaudited but have been prepared under the guidance of the new government-nominated board. So the figures can be relied upon, with some measure of confidence.
For the month of January 2009 (standalone financials)

• Sales during the month was Rs 661 crore, indicating a dip downwards, as clients started shifting accounts.

• Other income continued to be negative, personnel cost remained high in relation to revenues and OPM slipped to 8.96%.

• Net profit was only Rs 4 crore

• Performance deterioriated during the quarter but again stopped short of a loss.
February 2009 (standalone financials)

• The revenue rate improved in February 2009, to Rs 676 crore.

• Other income continues to be negative and increased in this month.

• Both employee costs and other operating costs were lower than the previous month

• OPM improved to 17.5% and net profit was much better at Rs 52 crore

Satyam’s financials indicate that while its performance is indeed much lower than what it has been reporting, it is not an irretrievable situation. That it is not incurring losses itself is encouraging for shareholders. The share price has jumped up 10% hitting the circuit breaker at Rs 67. That’s good news for its shareholders who have been left holding dud shares ever since Mr Raju confessed to a fraud in January 2009.

Tech Mahindra, of course, may have mixed feelings about this; its open offer is priced at Rs 58. It does not have to worry about the offer failing as it has an option to subscribe to preferential shares, to take its stake up to 51% from 31%. If Satyam’s share price keeps rising, it vindicates Tech Mahindra’s bid, which was much higher than L&T’s rival bid. But a higher price also means problems for integration, in a merger Satyam will command more value now and if Tech Mahindra wants to delist the company, the price it pays will be much higher.

The statement from Satyam is available on the Bombay Stock Exchange website here.

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