Restated numbers are better than the Street’s expectations
The worst seems to be over for Mahindra Satyam, earlier known as the scam-hit Satyam Computer Services. That's what the numbers announced by Tech Mahindra for the years ended March 2009 and March 2010 suggest.
"The major positive outcome for Mahindra Satyam because of the announcement of the results is that they will be eligible to participate in a lot more customer RFIs (request for information), which they could not previously because of their inability to disclose their financial numbers. In a growing market, the opportunity to participate in opportunities is critical. Mahindra Satyam from today will be in a position to do so," said Karthik Ananth, director-market expansion, Zinnov Management Consulting Pvt Ltd, a leading globalisation advisory.
Analysts believe the stock could see some uptrend, as the numbers were somewhat better than the Street had expected. "With the results coming in line with expectations, with slight upward bias and the uncertainty of financials over, we might see some buying interest coming back," said Apurva Shah, head of research, Prabhudas Lilladher.
The company has adjusted (written off) all the past fictitious transactions, as well as expenses incurred on account of legal charges, employee separation and reworking of customer contracts, among many others totalling Rs 8,409 crore pertaining to earlier years. This has resulted in it reporting a Rs 8,175-crore loss for 2008-09 and another of Rs 124 crore in 2009-10. Analysts say a large part of the uncertainty is behind for shareholders, who can now expect the company to post better numbers. However, they expect the medium term to be a bit bumpy, as the US market is still not out of the woods.
| RISING FROM THE TROUGH | |||
| (In Rs crore) | FY10* | FY10 Actuals | FY11E* |
| Revenues | 5,512 | 5,481 | 5776 |
| Ebitda (%) | 5.4 | 8.3 | 16.2 |
| Adj PAT | 147-180 | 293 | 766 |
| *Average of analyst estimates prior to announcement | |||
| BEHIND THE CLOSET Jan 7, 2009 : The day Satyam Computer chairman B Ramalinga Raju admits to '7,800 crore accounting fraud Jan 9: A 6-member board appointed by the Government of India to sustain Satyam and take it forward April 16: Company Law Board approves the selection of Venturbay Consultants Pvt Ltd (a subsidiary of Tech Mahindra) to take controlling stake in Satyam through a global competitive bid May 27: Tech Mahindra management formally inducted into the board of Satyam |
Above expectations
The good news is that Mahindra Satyam's operating profit margin of 8.3 per cent for 2009-10 is higher than the 5-7 per cent the Street was expecting, on revenues of Rs 5,481 crore, which were largely in line with estimates. The improvement in profitability is consequent to the company being able to cut its operating cost by 40 per cent to about Rs 5,020 crore in 2009-10, compared to a year earlier.
Excluding the exceptional items worth Rs 417 crore in 2009-10, the company reported a net profit of Rs 293 crore, which suggest the operations are profitable. As it scales up its business and keeps a tab on costs, expect its profits to rise from current levels.
On the business front, too, it seems to be doing well. The company, which had seen its customer count fall to about 350 during the turbulent past two years from a little over 500, added 44 new clients last year. This indicates customers' faith and should pay dividends in future in the form of higher revenues.
While the management also indicated the pricing environment looks healthy, the company is now looking to add over 3,000 employees in the current financial year, which reflects confidence in terms of business prospects. Earlier, the company had seen a sharp reduction in employee strength (44,000 in 2008-09 to 27,000 last year), consequent to realignment of business and attrition.
Consequent to the past problems and losses, the company had seen its net worth wiped out-it was a negative Rs 880 crore for 2008-09. But, consequent to cash infusion by the new promoters, the balance sheet looks better now. Its net worth was Rs 1,900 crore as of March 2010, with cash on hand worth Rs 2,180 crore and investments of Rs 627 crore in its books (total debt at a mere Rs 42 crore).
But reverting to earlier glorious times may take another one to two years. Also, there could be some overhangs. These include settlement of the class action suit claiming damages worth $68 million by 20 US-based investors. The result of this suit will take about two-three years, believes the company management.
