Key business indicators are looking up at Satyam Computer Services as Mahindras near completion of the third year of taking over the fraud-hit company.
The new management had given itself three years to revive the company.
Satyam reported a 36.6% rise in its net profit for the third quarter of the fiscal ended December at Rs308.4 crore as against the Rs238.2 crore in the sequential July-September quarter.
Consolidated revenue rose 8.9% at Rs1,781.1 crore in the third quarter over the sequential quarter. Earnings before interest, tax, depreciation, and amortisation (Ebitda) rose 15.1% to Rs278.1 crore. Forex gains at Rs66.39 crore were a key component of other income of Rs151.27 crore.
The company is now pinning hopes on the bottom of the employee pyramid to expand margins further.
“The hiring in the 0-3 year (experience) category has helped us improve margins. Currently, we have about 29% of the employee base in that category. We still have some headroom for hiring in that category and that would have a positive impact on the margins,” Vasant Krishnan, Satyam’s CFO, said.
He said the company has reduced the costs by using the hiring lever.
“In the third quarter of fiscal 2011, our Ebitda margin was 6.2%, which we have now expanded to 16.2%. Also, our sub-contract cost to revenue was 72%, which we have managed to contain to 67%. One of the big levers that we are continuously pushing is to see how we can strengthen and widen that talent pyramid. Even administrative expenses are steadily coming down. I think we are on the right track,” he said.
However, Krishnan refused to elaborate on how far the company can stretch the resizing of the pyramid to expand its gross
margins. Satyam currently has 32,280 employees with the attrition in the third quarter dropping to 16% from 25% a year ago.
During the third quarter, the company saw increased traction from the banking, financial services and insurance (BFSI) sector as the vertical contributed about 15% to revenues. Geographically, the US continues to remain a key market with over 50% revenues coming from that region.
On merger with Tech Mahindra, Satyam’s chairman Vineet Nayyar said, “We are looking at the process which needs to be done. Hopefully, by October we should have both the companies close to the merger. Beyond that at this point, I cannot say anything because there are so many issues which will come up as we go along. The normal timeline that takes for a merger is 7-8 months.”
Meanwhile, the company has co-opted Ministry of Corporate Affairs nominee Ashok Kackeras a director on the board. A retired government official,
Analysts, however, were disappointed at de-growth in business volumes though the margins have improved beyond expectations.
“Satyam’s operating numbers were below estimates. The 1.5% de-growth in volumes was disappointing. The improvement in Ebitda margins was higher than our expectations, though. Satyam added only 188 employees on a quarter-on-quarter basis, reflecting the just-in-time hiring adopted by the company in the backdrop of an uncertain macro environment,” Dipen Shah, head- fundamental research, Kotak Securities, said.
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