Satyam profit lifted by lower wages and higher other income, stock up 11%

Satyam Computer Services (rebranded as Mahindra Satyam) reported a 3% growth in operating income to Rs 1,279 crore, over the preceding quarter. All comparisons are for its consolidated results and on a sequential basis.

The software company, which was run down by a fraud committed by its chief promoter, is now owned by Tech Mahindra Ltd, a Mahindra group company. Shareholders of Satyam and Tech Mahindra keep a close watch on its performance. One wants to know how much of their post-scam market losses can be recovered, and the other wants to know what kind of payoffs will Tech Mahindra’s investment bring? It is widely anticipated that both companies will eventually merge their corporate entities, in some form.

Though Satyam’s sales rose by a small percentage, employee costs fell by 0.5%. The company had given wage hikes in the previous quarter, which may have had a one-off component. It had hiked wages as did other software companies, in a bid to keep attrition in check. It has an attrition rate of close to 25%, though this is coming down. Its consolidated head count has gone up by 764 over the previous quarter, to 28,832 employees.

Though its operating and administrative costs rose by 13%, the decline in wages (71% of sales) ensured that its operating profit margin went up to 6.4% from 5.9%. This may hold on if it can keep employee costs under check or be reversed if it goes up again.

But operating profit’s growth at 11% is relatively tame compared to net profit growth. A few non-business related factors contributed to it. One, depreciation declined by 11% which has not been explained, but could be due to certain items being written off in the previous quarter. The company management had indicated in an earlier conference call, that depreciation will increase as it moves to owned premises, from rented ones at present.

Other income rose by a high 178% to Rs 87 crore, which was partly offset by a five-fold increase in exceptional items of expense to Rs 53 crore. Other income included a forex-related gain of Rs 13 crore and exceptional items included erosion in value of subsidiaries of Rs 52 crore.

The cumulative effect of these items was to take Satyam’s profit, after minority interests, to Rs 59 crore compared to Rs 23 crore, or up 153% compared to the 11% growth in operating profit.

The share is up by 11% after its results were announced, at the time of posting.

Read the statement from Satyam on the results here and download its consolidated results table here.

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