Satyam is the fourth-largest IT services company in India. It offers a range of IT services
catering to verticals such as manufacturing, banking and financial services, insurance,
telecom-infrastructure-media-entertainment-semiconductors (TIMES), and health care,
among others. Satyam has the largest ERP practice amongst offshore vendors, with
competencies in implementation of enterprise packages such as Oracle, SAP, PeopleSoft, and
JD Edwards. Satyam’s presence spans 55 countries, across six continents. The company has
649 clients across the globe (including subsidiaries) and employs over 52,865 professionals,
including its subsidiaries and joint ventures. Revenues for FY08 stood at INR 84.7 bn and
profits at INR 16.9 bn, up 30% and 20% respectively from that in FY07.
- The revenues of Satyam Computer Services (Satyam) grew by 7.6% quarter on
quarter (qoq) and by 38.8% year on year (yoy) to Rs2,819.3 crore in Q2 FY’09.
The revenue growth was driven by the depreciation in the rupee against the
dollar (which contributed 5.1% to the sequential growth). - In dollar terms, the revenues grew by 2.4% qoq to USD 652.2 million, which is marginally above the higher end of the guidance of USD 651.9 million.
- The volume growth of 4% is partially offset by the decline in the price realization (onsite: a 0.15% decline sequentially; offshore: a 0.23% decline sequentially) due to cross-currency head wind and the change in the service mix (a higher proportion of offshore revenues).
- The operating profit margin (OPM) declined by 103 basis points to 23.1% during
the quarter on account of a wage hike (12% for offshore and 3% for onsite
employees, effective from July 2008) during the quarter. This was partially offset
by the favourable impact of the currency. Consequently, the operating profit grew
by 3% qoq to Rs651 crore. - The net income grew by 6.1% qoq to Rs581 crore in Q2FY2009. The net income
was above our expectation of Rs538.1 crore on account of foreign exchange
(forex) gains. The company reported forex gains of Rs9 crore in Q2FY2009 v/s
forex losses of Rs36 crore in Q1FY2009.
Other Highlights :
- In terms of deal pipeline the company currently has 20 large deals in pipeline. However, the company is witnessing delay in the deal cycle time. In fact the Satyam BPO’s animation deal, which was supposed to be resumed in Q2FY2009, has not yet resumed. The company now expects to close the deal in the second half of FY2009.
- Satyam derives over half of its ‘enterprise solutions’ from new license implementation, making it more vulnerable to uncertainties in the domain than its peers (Infosys, Wipro, TCS, and HCL Technologies) in the event of continued weakness in the ERP space.
- The number of million-dollar clients has declined sequentially—the first such quarterly
decline since Q1FY07. The rapidly deteriorating business situation for the big-three auto
players could affect Satyam, given its exposure to the auto sector. - The ‘enterprise solutions’ segment (Satyam’s mainstay and primary competitive
advantage) has grown slower than the company average for the second successive
quarter. It is under stood from analyst reports that key clients such as the World Bank are scaling down for reasons other than global weakness. - Revenues in USD from existing clients (clients before FY09) grew just 1.4% Q-o-Q,
- Onsite and domestic utilisation stood at 96.1% and 110.0%, respectively, for Q2FY09.
- Offshore utilisation was reported at 76% in Q2FY09 (against 86.2% under the old
measure of utilisation). Effective from Q1FY09, the company changed its base for
computing offshore utilisation from 1,884 hours to 2,120 hours, to establish a base that
is comparable with peers. - Q-o-Q billing rates dipped marginally for both offshore (0.43%) and onsite (0.75%).
- New client addition stood at 33 for the quarter, taking total active client count to 649.
- The number of clients contributing revenues in excess of USD 1 mn declined this quarter,
standing at 230 compared with 237 in the previous quarter and 213 a year ago. - Net employee addition improved from the previous quarter to 1,814 (including 221
trainees), taking total employee count to 52,865. - The attrition rate was the lowest during the company’s history and stood at 12.3%.
The TIMES and manufacturing verticals have shown growth of 10.3% and 3.2% Q-o-Q,
respectively. However, the retail and banking and finance verticals witnessed a
sequential decline in growth of 8% and 2%, respectively. The company stated that
decline in growth in the retail segment was primarily due to cross-currency movement.
success in growing relationships with other than the top 15-20 accounts. Recent initiatives at
Satyam include growing practices such as engineering and infrastructure segments, which
have huge untapped potential. The company has recognised the need to focus on large deals
and formed a strategic deals group (SDG) to pursue and filter large deal opportunities. We
believe that Satyam’s strong revenue momentum and lower BFSI exposure, compared with
peers, puts it in a relatively good position in the event of weakness in this space.
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