12. Satyam Computer: Services Widening Horizons

Hyderabad-based Satyam Computer Services grew by an impressive 81.3% last fiscal, from Rs 672.8 crore to Rs 1,220 crore. Gross profits were up 82.3% to Rs 462 crore, while net profits grew by over 134% to Rs 316 crore. All these figures were well above industry averages. It was a year of severe margin pressure for software exporters and Satyam was no exception. The third and fourth quarters saw operating margins drop, though they seemed to pick up a little towards the end.
The company announced a 40% dividend–10 percentage points over last year.

Satyam also launched a major recruitment drive during the fiscal. It hired over 3,500 additional people, raising its employee strength by 70%, from 5,067 to 8,593. The good news was that despite this, productivity per employee also increased, from Rs 13.3 lakh to Rs 14.2 lakh per employee. The bad news was that it is still not up to industry standards. It moved away from Y2K and post-Y2K work, but continued with its focus on maintenance and reengineering services. At the end of the fiscal, migration/porting and maintenance had accounted for 21% of export revenues, while open systems and engineering services accounted for another 46%. Internet and e-commerce applications accounted for the other big chunk of business–about 26% of export revenues.

Unlike immediate rivals, however, Satyam’s exposure to the telecom vertical was not very high–accounting for only 9% of revenues. This share, in fact, fell further during the first quarter of the current year. Satyam’s traditional strengths have been in the services and manufacturing verticals and that is how it remained this year. Services contributed 25.3% and manufacturing 19.7% of revenues. An upcoming area was banking and finance, whose share of revenues grew to over 20%. Interestingly, Satyam gets a significant 4.8% of revenues from the government sector.

In other parameters, the company performed as per industry standards. Onsite-offshore revenues were at a 43:57 ratio. The US contributed over 75% of export revenues and Europe 7.3%.

The fiscal under review was all about expansion, tieups and consolidation. The company partnered with i2 Technologies, Ariba and Microsoft (for speeding up the Web—enabled and e-commerce applications segment, and later for .NET applications). It formed a strategic alliance with TRW to service the automobile sector and joined up with Computer Associates to address the SME market.