Satyam: Not By Price Alone

The success of the Indian software services sector has usually

been ascribed to the wage differential between India and the West. However, the

pricing advantage is increasingly being diluted by rising salaries in India,

and, more recently, by the falling dollar. Yet, the Some companies have focused

on particular niches, others have looked at acquisitions and alliances to reach

better paying clients while still others have looked at internal processes and

systems to nullify the impact of the disappearing wage differential.

Among companies that have been successful in surviving and even

prospering despite the challenges of bigger competitors as well as the rising

salary bills is Hyderabad-based Satyam. The company has been looking at

acquisitions and alliances to develop a better reach to clients and domain

expertise, and consequently improve billing rates.

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.

The Secunderabad-based company renders its services to

industries such as banking and finance, insurance, manufacturing, telecom,

infrastructure, media, entertainment, semiconductor, healthcare, retail, and

transportation. Satyam's current equity stands at Rs 178.9 crore with

promoters holding 8.8%, institutional investors holding 58.8%, the Indian public

holding 12.8%, and the balance 19.5% of the stake is held by others including

foreign shareholders. Ramalinga Raju did his MBA from Ohio after he completed

his B.Com 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, 2007 from

services stood at Rs 6,485 crore, a growth of 35.3% as compared to Rs 4,793

crore in the same period last year. Net Profit for the period stood at Rs

1,404.6 crore, an increase of 42% from Rs 989.3 crore in the same period last

year.

During the year Satyam Computer Services signed a seven-year

multi-million dollar contract with Qantas, an Australian airline. The agreement

covers application development and maintenance services for over 150

applications across a wide portfolio of technologies. During the period it

established an R&D hub in Singapore to test and develop applications. The

company also collaborated with Microsoft to provide Business Intelligence and

Data Warehousing facilities in Singapore and Shanghai. Satyam formed an alliance

with Austin, Texas-based Planview, an enterprise portfolio management software

organization. It also formed an alliance with GigaSpaces Technologies to provide

end-to-end solutions for service-oriented architecture.

Satyam partnered with EPiServer, a Swedish content management

and portal software company. It entered into a strategic partnership agreement

with NNIT, Denmark's consultancy in IT development, implementation and

operations.

During the fourth quarter ended March 31, 2007, revenue from

services stood at Rs 1,779.1 crore, an increase of 35.4% from Rs 1,313.6 crore

on a y-o-y basis and an increase of 7.1% from Rs 1,661.1 crore on a sequential

basis. Net Profit stood at Rs 393.6 crore, an increase of 38.3% from Rs 284.6

crore on a y-o-y basis and an increase of 16.7% from Rs 337.2 crore on a

sequential basis.

During the quarter Satyam added 35 new customers including five

Fortune Global 500 and US 500 customers resulting in the number of active

customers during the quarter stand at 538 as compared to 469 in the same period

last year. Satyam ended the quarter with total employee strength at 35,670, an

addition of 1,265 associates including 600 trainees for Q4 '07. The number of

associates including those of subsidiaries and joint ventures stood at 39,552.

During the quarter Satyam signed a five-year contract with

Applied Materials to provide application development, maintenance, and support

plus business transformation core technology services through a managed services

delivery model.

For fiscal 2008 the company expects a revenue growth in the

range of Rs 7,793 crore to 7,916 crore. We believe that given the increasing

network of alliances and acquisitions the company has the ability to grow

revenues without seriously impacting margins.

Satyam currently trades at Rs 467.8 discounting March 2008 EPS

by 24.8 times and March 2009 EPS by 20.7 times. With stable margins and strong

topline growth we believe that the company continues to remain in the investment

zone. BUY

Sushanto Mitra



The author is director, Techcap India



sushanto@techcapIndia.com



The views reflected here are of the author and not of this publication.


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