Offshore gains

SOFTWARE

The recent revised guidance of the over $1bn Indian IT services major is an indication that it may not lose its edge.

Satyam Computer Services (Satyam) is riding high on the wave of global outsourcing. "With 71 per cent of the global GDP comprising services, we expect many more companies to move to location-independent (virtual) platforms, thus adding to our business," says B Ramalinga Raju, Founder and Chairman, Satyam.

"No country is better placed than India to cater to the demand," he reasons "� a fact borne out by the strong profits posted by the top four Indian IT companies. The youngest of the four, Satyam's optimism was furthered when it recently revised its guidance for 2006-07 from Rs 6,000-6,100 crore to Rs 6190-6290 crore due to better volume growth. The rupee depreciation, though, added to the upward revision.

What is working for Satyam is that for the first quarter, its net profit stood at Rs 354.12 crore. Offshore contribution (44.34% as of March 2006 "� now pegged around 47%) continued to increase. It added 34 new customers and its repeat business stands close to 88 per cent. The company also recently bagged multi-year deals from GM (bagging $150 million worth of business partnering with CapGemini and HP to be executed over five years) and Nissan (five-year maintenance, support, and application portfolio enhancement deal with Nissan North America). It was also among the first companies to set up a separate large deal strategy by inducting a senior executive from Computer Sciences Corporation last year.

Raju says he believes in "multiplying leaders within the organisation". "We are also focused on creating an organisational environment which will help us attract and retain the best talent in the geographies that we operate in. One such initiative is the setting up of the Satyam School of Leadership to groom leaders and fulfill the learning needs of associates," he says.

His strategy appears to have clicked. The steady rise in the number of clients in the $5 million (51 from 46 in the previous quarter) and $10 million bracket (33 from 27) suggests the business momentum will continue. Satyam may also manage to push for billing rate hikes among its existing clients if the trend continues. "This reiterates our customers' increasing confidence in our ability to deliver higher business value," says Raju. Satyam also added 1123 associates (the company calls its employees "associates") in the quarter. The total number, including that of subsidiaries and joint ventures, rose to 29,843. The company is expected to end the financial year with over 36,000 people.

However, adding new employees (coming into effect in July-September quarter) at higher wages will increase cost. The company's visa costs too have risen roughly around Rs 18-19 crores, quarter on quarter. Besides, Satyam competes with majors like Accenture, BearingPoint, Capgemini, Deloitte Consulting, Hewlett-Packard, Computer Sciences Corporation, Electronic Data Systems, IBM Global Services, Infosys Technologies, Tata Consultancy Services, and Wipro.

Moreover, the contribution from the top five clients has been sluggish. The growth of clients, outside the top 10, has been the key driver of revenues for Satyam. Besides, the attrition rate of Satyam, at 19 per cent plus, also remains a cause for concern. Raju attributes the higher attrition rates to "forced attrition". "Every year, we ask 3-4 per cent of our employees to leave if they do not measure up to the 'Performance Improvement Plan' mark. We will be satisfied with around 10-12 per cent attrition rates."

There's also the over-reliance on US angle although from about 85 per cent of the business from the US a few years ago, it has been reduced to 64 per cent and business from other geographies is increasing. Satyam's contribution from Europe (17.6% in the latest quarter) is lower when compared to the top three Indian IT companies. Its subsidiaries too haven't been contributing positively.

Raju, however, says that Nipuna had turned cash positive and is poised to register revenues of $36 million in 2007 "� slightly over 80 per cent growth.

Satyam also has plans to expand operations across several cities and is likely to scale up capex from $75-100 million this year as it has acquired about 230 acres in Chennai, Hyderabad, Visakhapatnam and Nagpur. Continued reduction in the contribution of top 10 customers has helped in de-risking the business model. The company expects to ramp up its China operations.

On the acquisition front, Raju says: "We are open to acquisitions to fill the gaps. But the focus is on smaller companies with specialised skills.'' Moreover, having concentrated on the BFSI, manufacturing and telecom sectors, the company is now looking at emerging sectors like oil and gas, pharma and healthcare. Domestic companies too are now on the radar of Satyam (India currently contributes around 2-3% to the topline). So when will the company hit the $2-billion mark. Raju says he cannot make any forward-looking statement.