Satyam margin still wallows

B Ramalinga Raju had stunned everyone on January 7 this year when he disclosed in his grand confessional that the erstwhile Satyam Computer Services made a net profit of just Rs3 on every Rs 100 revenues.

Six months after taking over the company, C P Gurnani, CEO of Mahindra Satyam — as the company is called now — says margins are “slightly over 3%.”

That compares with more than 25% levels for Infosys, 20% for TCS and 15% for Wipro.
Gurnani said per se, there is no problem with the pricing formula followed in Raju’s time.

During the turbulent times, it is said, Satyam was bagging projects by quoting $23 to $25 per hour.

Later, investigators also found evidence of such low billing rates.

“Most of the contracts are being continued at earlier prices. We found Satyam’s pricing was in line with the industry. I don’t think any customer had any reason to question the pricing. We have not gone about asking for higher prices nor have the customers bargained for lower prices,” Gurnani said.

The company has also been struggling to sort out certain legal issues. A case filed by UK-based mobile payment solutions company Upaid alleging forgery and fraud on Satyam has been demanding significant resources from the new management of the company.

“We are currently engaged in negotiations with Upaid on settling the case out of court,” Gurnani said.

Upaid had sought $1 billion in damages from Satyam and the case is likely to come up for hearing in a US court shortly.

Satyam lost about 100 customers after the fraud unraveled. The company currently has about 400 customers.

According to him, the company is now making efforts to woo back those that walked out.

“We have appointed Bain & Co as consultants for bringing back the customers. They are helping in driving some of the processes. We have a group of people getting together in a ‘Win Room’ for delivering better transformational experiences to the customers and getting back to our ex-customers. This team has several senior leaders,” he said, without elaborating on the success so far from this effort.

The New York Stock Exchange last week threatened to delist the company for not filing accounts on time and marked it a ‘late filer’.

“The restatement accounts to us is historical and it will happen one of these days. Since we are trying to do it for the last five years, it is important for us. KPMG is working as hard as humanly possible to complete it,” Gurnani said.

He said the merger of Tech Mahindra and Mahindra Satyam is imminent. “Both companies have some synergies and it only makes sense to merge them. But, the merger would happen only after the restatement of accounts,” he said.

The Company Law Board has extended time for the company to restate its accounts till June 2010.

This follows Raju’s confession that accounts of the company were fudged for over five years.

Mahindra Satyam is also working on a plan to make the company an ICT entity instead of just an IT firm.

Though not formally announced, the concept is getting some traction, Gurnani said.
“Ultimately telecommunications is an integral part of Tech Mahindra. IT and telecommunications have now become integral part of each other. Tech Mahindra has the unique skills of telecommunication and Mahindra Satyam has the unique skillsets in IT and enterprises. It will be a bundled approach. We are doing one or two cases (using the ICT model). We are successfully demonstrating the values and advantages. We are doing it for few reference customers,” he said.

Once these reference customers are in place, Mahindra Satyam is planning to go to market aggressively to offer an entire range of ICT solutions as against pure-play IT solutions.

Gurnani said there were never any non-existent employees —- there were talks of about 10,000 of them during the height of the scam.

Mahindra Satyam currently has about 35,000 employees and about 8,000 were dispatched into a virtual pool. Of these, about 5,000 are believed to be on the verge of getting laid off by December 2009.