Hyderabad-based Satyam Computers on Friday entered the billion-dollar club, beating its own guidance on revenue growth and net profit.
Employee compensation weighs heavy on margins
HYDERABAD: Hyderabad-based Satyam Computers on Friday entered the billion-dollar club, beating its own guidance on revenue growth and net profit. But its guidance for FY07 seems to have fallen short of market expectations and the company's shares had their largest one-day drop in more than two years.
Its shares fell 7.3%, the most since February 3, 2004, to Rs 808.15. The company projected revenue guidance of Rs 6,000-6,100 crore for FY07, indicating an annual growth of 25.2-27.3% and forecast EPS at Rs 36-Rs36.60.
While the 36% jump it posted in revenues at Rs 4,793 crore is the highest in the industry this fiscal, its net was also up at a robust 38% when compared to the previous year. EPS for the year at Rs 30.50, beat the company's guidance of Rs 30.36. The board of the company has proposed a bonus issue of 1:1 and a final dividend of 250%, taking the total dividend to 350% including the interim dividend of 100%.
"This is a fairly optimistic guidance under the circumstances providing for an 18-20% growth in EPS and these are the numbers that our business model has thrown up," chairman B Ramalinga Raju said.
But one aspect weighing heavily on the management is the challenge to retain talent.
The company is planning to introduce restricted stock units for employees and plans to raise salaries by between 18% and 19% percent for employees in India, after a 12% increase last year. It plans to raise salaries for overseas workers by between 5% and 6%, compared with 3% last year.
This will result in a decline in margins of 120 basis points, CFO Srinivas Vadlamani noted, adding the new pay packages would be effective July this year. This will mean an outgo equal to 4% of the projected revenues for the year.
Satyam raised salaries at a higher rate than larger rivals TCS and Infosys, which raised wages by about 15% earlier this month for workers in India.
This is because Satyam finds it more challenging to hire and retain workers with knowledge of customising and installing business software from SAP AG and Oracle Corp, its fastest growing area. Revenue from this service rose to 39% of sales from 36% the year ago.
The firm cited stock incentives and salary hikes as factors in its forecast. Without stock these, the company expects full-year EPS to rise as much as 23.4%.
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