Satyam Computer Service: Making Success A Habit

The success story of the Indian software sector is now a
familiar one with each passing quarter showing over 30% profit growth. That's
what is special about the business model of the Indian software sector that
shows stable revenue and profit growth y-o-y and q-o-q without fail. Of course
this dream run can't continue forever but given the competitive strengths of
India, growing outsourcing markets and strong position some of the Indian
companies have reached in the sector, the outlook for the next 4-5 years remains
bullish.

Hyderabad-based Satyam Computer Services is also one the leading
software services companies in India that has made a y-o-y success look easy as
it has carefully carved its due position in the Indian software services domain.

Established in June 1987 by its founder and current chairman B
Ramalinga Raju, Satyam Computer Services offers a wide range of IT consulting
and related services including software development and maintenance, consulting
and enterprise business solutions, extended engineering solutions and
infrastructure management services.

Satyam's current equity stands at Rs 222 crore with promoters
holding 14%, institutional investors holding 59.9%, the Indian public holding
4.1% and the balance 22% of the stake is held by others including foreign
shareholders. Raju did his MBA from Ohio after he completed his Bcom from Loyola
College at Vijayawada. Prior to setting up Satyam, Raju was engaged in the
textile spinning and construction business apart from other family businesses.

Satyam's revenue for the year ended March 31, 2006 from
services stood at Rs 4,793 crore with a growth of 36% over the previous year.
After tax profits stood at Rs 982 crore, a growth of 38% y-o-y, excluding the
profit on sale of stake in Sify. The company's BPO subsidiary, Nipuna,
achieved sales of Rs 33.8 crore and showed positive cash profits for the first
time this year. Fiscal 2006 witnessed the gross addition of 120 customers,
including 12 Fortune 500 and US 500 corporations providing a strong platform for
future growth.

Revenue for the second quarter stood at Rs 1,602 crore, an
increase of 39% as compared to Rs 1,155 crore in the same period last year; on a
q-o-q basis it showed 11% growth from Rs 1,443 crore. Net Profit stood at Rs
319.8 crore, an increase of 33.7% on a y-o-y basis as compared to Rs 239.2 crore.
The quarter saw improvement in margins as well as increased contribution of 48%
from offshore activities. The quarter witnessed addition of 35 new customers
taking the total of active customers to 504. During the quarter Satyam formed
alliance with EpiServer, a Swedish content management and portal software
company. The partnership will enhance Satyam's ability to implement, maintain,
and provide training services for EPiServer-based solutions. It also formed
alliance with Giga Spaces Technologies to provide end-to-end solutions for
service-oriented architecture and grid environments. The results will include
low-latency, scalable solutions that will be useful for companies that rely on
high-volume transactional applications. It formed alliance with Austin,
Texas-based Planview, an enterprise portfolio management software organization.
The alliance would enable Satyam to deliver enterprise portfolio management, IT
governance, and project management processes to companies around the world.
Satyam entered into a multi million dollar deal to manage Nissan's
mission-critical business applications in its North American market. It launched
a new Global Development Center (GDC) for Nissan North America in Chennai to
provide application management services for Nissan's operations. Satyam will
also manage Nissan's Customer Relationship Management (Siebel) applications
post deployment.

Satyam has signed a seven-year contract with Qantas, an
Australian airline. The agreement covers application development and maintenance
services for over 150 applications across a wide portfolio of technologies. This
follows the recent Oracle e-Business suite contract announced in August between
Qantas and Satyam for the implemented elements of Qantas' eBusiness systems.

Satyam added 4,025 associates in the quarter, taking the total
employee strength to 31,659. Total resources, including those of subsidiaries
and joint ventures, increased to 34,908.

Going ahead the company expects revenues to be in the range of
Rs 6,000 crore indicating an annual growth of 25.2%. The BPO subsidiary Nipuna
is expected to close fiscal 2007 with Rs 162 crore of revenues that is 100% more
than the fiscal 2006. The company also expects its margins to remain stable.
Given the strong showing in the 2nd quarter and current industry outlook we
believe the company will continue to grow in the region of 30% and show slightly
better profit growth.

Satyam currently trades at Rs 432.15 discounting March 2007 EPS
by 21.4 times. Given the strong showing in the last quarter and the continued
growth in the outsourcing market we believe that stock has considerable scope
for appreciation. Market Performer.

Sushanto Mitra

The author is the director, Techcap India

sushanto@techcapIndia.com

The views reflected here are of the author and not of this publication. No
liability is accepted for losses based on the information presented here