Unexpectedly healthy results see scrip hit upper circuit filter.
Fraud-hit Satyam Computer Services today pleasantly surprised the markets, though it left analysts puzzled when it posted its results for the quarter ended December 31, 2008, to reveal a consolidated net profit of around Rs 160 crore and revenues of Rs 2,414.31 crore.
Top-line and bottom-line numbers for January and February were declared and showed healthy operating profit margins.
The company had not declared results for the October-December and January-March quarters after its founder Ramalinga Raju confessed on January 7 to overstating profits for several years. Raju is currently in jail, with several family members and colleagues, and has declined to speak to the media till investigations into the fraud are complete. In December, Satyam had to scrap a plan to acquire two promoter-owned companies following strong shareholder protests.
Though the company is yet to restate its accounts — they are being scrutinised by accountancy firms KPMG and Deloitte — investors reacted to the results with enthusiasm, causing the Satyam stock to hit the upper circuit filter on the Bombay Stock Exchange (BSE). Satyam’s buyer Tech Mahindra’s scrip jumped almost 25 per cent, to close at Rs 744.20.
The numbers were declared after the Securities and Exchange Board of India, while clearing Satyam’s open offer last Tuesday, asked Tech Mahindra to share these with the company’s stakeholders since this information had already been provided to prospective bidders.
In its filing to the BSE, the company said it chose to reveal these details “as a matter of good corporate governance and in the interest of full disclosure”. It, however, qualified: “The information has not been audited. There can be no assurance that any such information is accurate, and the actual results may be materially higher or lower than projected.”
The company, which was bought by Tech Mahindra on April 14, simultaneously disclosed positive top-line and bottom-line numbers for January and February 2009 (see table).
Analysts, however, were foxed by the operating margins of almost 9 and 19 per cent, respectively, since Raju had said the companies operating margins had dipped to almost 3 per cent in his January 7 confession of fraud. An analyst from a Mumbai brokerage firm attributed the decent January and February margins to the cut in employee numbers.
Sequentially, however, Satyam saw a 14.3 per cent loss in revenue and a 72 per cent dip in net profit. In comparison, all the IT majors — Tata Consultancy Services (T CS), Infosys, Wipro and HCL — saw a sequential rise in revenue and net profit in the same quarter.
The company, meanwhile, has foreign exchange hedges (forward/options) worth $164 million (around Rs 800 crore) as of March 31, 2009. The estimated mark-to-market (MTM) losses will be Rs 110 crore. MTM losses paid out in January to March 2009 is Rs 148 crore. The company also declared a cash reserve of Rs 373 crore (as on March 31, 2009).
The company also said it has lost 66 clients worth $183 million (around Rs 900 crore), either because contracts were terminated or expired. However, Satyam has simultaneously received new business orders worth $380 million (Rs 1,800 crore).
The company also lost 9,457 employees (around 19 per cent of its original employee figure of around 52,000) between January 2008 and February 2009. Close to 1,602 employees left the company in February 2009 alone. As of March 28, the company had 41,622 employees.
Attrition in Satyam BPO also continued. For the quarter ended December 31, 2008, and for the months ended January and February 2009, attrition was 13.99, 2.52 and 3.64 per cent respectively.
Overall, keeping in view the global slowdown and the accounting fraud, analysts said these numbers are good.
“There is some clarity now. Double-digit EBITDA margins, cash flow and the fact that the company is profitable is a huge positive,” said Harit Shah, research analyst at Angel Broking.
Going ahead, he added, the company will have to reduce it’s headcount to cut costs. “Despite this, the uncertainty for Tech Mahindra continues, as there are many other unresolved issues. Moreover, the numbers are not audited,” he said.
Deven Choksey, Managing Director, KR Choksey Securities, also raised the issue of head-count. “The numbers are just for two months. Based on that we think on an annual basis, the EPS should be Rs 9. But then, the company has 10,000 employees on the bench which needs to be addressed,” he said.
| NEW TRUTHS ABOUT SATYAM (How the quarterly results stack up pre- and post-Raju) | |||||
| 31 Dec, 07* | 31 Dec, 08* | Y-o-Y (%) | 30 Sept, 08* | Q-o-Q (%) | |
| Revenue | 2266 | 2414.13 | 6.5 | 2819.3 | -14.3 |
| PAT | 433.63 | 160.05 | -63 | 580.9 | -72 |
| *Quarter ended | |||||
| Monthly results | Net profit | Revenue | Operating margins (%) | ||
| Dec 31, 2008 | 160.05 | 2414.13 | 15.87 | ||
| Jan 31, 2009 (standalone)* | 4 | 647 | 8.96 | ||
| Feb 28, 2009 (standalone)** | 52 | 637 | 17.46 | ||
| (Consolidated); *Revenue= Rs 663.47 crore till January 20, 2009 **Revenue= Rs 663.09 crore; Figures in Rs crore unless otherwise indicated | |||||
“Besides the company has lost market key clients, which is a concern. It also means that Tech Mahindra will have to work really hard to get those clients back,” he added.
“On the revenue side, if the run rate is correct, then Satyam is a $1.6 billion firm. But after the client loss and assuming additional business losses in recent times, it should be around a $1.1 billion firm. What matters now is to find the exact number of clients and the business,” another analyst said.
