| Satyam revenue to take 25% hit on client loss | |
| Leslie D`Monte / New Delhi January 13, 2009, 0:47 IST | |
Around 40 per cent, or up to $1 billion, of Satyam's revenue pie can get redistributed among other IT players on an annualised run-rate basis by the end of the fourth quarter of CY09. Effectively, around 25 per cent of Satyam's revenue (around Rs 2,500 crore) could be affected by FY10, as not all contracts exits are upfront, note Edelweiss analysts Viju George and Kunal Sangoi.
They assume that about 70 per cent of the revenues are up for renegotiation or renewal in the first and second quarters of the current financial year. A large proportion of Satyam’s revenues are non-annuity based and thus come up for renegotiation/renewal more often, they explain. This is an opportune time for them since client budgets are arranged at the beginning of the calendar year.
Clients of the troubled IT services provider have already approached outsourcing advisory and research firms such as Booz & Company and Forrester in a bid to review their relationships with the company, following the admission of a financial fraud by former chairman Ramalinga Raju.
Sudin Apte of Forrester said that post the shocking disclosure, "around 30-50 per cent clients would review their deals with Satyam". These, he explains are primarily the ones (numbering 100) that have deals of around $1 million or lower.
Around 237 accounts spend more than $1 million annually with the company and 52 accounts spend over $10 million. More than half a dozen providers have already called Forrester to discuss competitive strategies for taking over business in joint accounts. "Several clients have already contacted our outsourcing advisory services practice as they are quite concerned about their relationship and level of business with Satyam. They have three questions — Will Satyam survive? What are the alternatives and how quickly can we transition work to other alternatives; and What due diligence do we need to do on the governance models and financial integrity of incumbent offshore providers with whom we have relationships?" concurred Vinay Couto, a partner in Booz & Company’s Chicago office and Suvojoy Sengupta, a partner leading the company's India operations.
Since 2003, there are a few who have only one (exclusive) vendor in India. The Edelweiss analysts attach a greater probability of 50 per cent to such contracts going the other vendors’ way as switching costs are lower and comfort is higher. For instance, Citibank and GM are clients of both Wipro and Satyam. It is likely that these relationships will significantly shift in Wipro's favour. Where Satyam has exclusive relationships (i.e., 25 per cent of the soon-to-be renegotiated revenues), they attach a lower probability of 25 per cent of a shift away from Satyam.
Infosys Technologies, on its part, has publicly stated it will not actively poach clients of beleaguered company. Major players such as TCS and Wipro share many clients with Satyam, and could benefit from the renewal of deals. However, Infosys may prefer to stay away from those contracts since the company believes it will dilute the quality of revenues (since Satyam has very low billing rates).
Cognizant could benefit relatively less given its limited strength in Satyam’s mainstay -— ERP, manufacturing, and presence in emerging markets. Likewise, HCL Technologies may not be a beneficiary as its entrenchment in ERP is relatively low, note the analysts. TCS is likely to gain most (around $115 million in FY10 or 2 per cent of its FY09 revenues) since it has the maximum client overlap with Satyam.
Wipro and Infosys follow behind with about $95 million and $80 million respectively (also, within 2-2.5 per cent of their FY09 IT-services revenues). As for Accenture, the Edelweiss analysts believe the company may still lean towards outsourcing contracts that have consulting embedded into the value proposition, else it may amount to revenue contamination for the company.
IBM may be less selective than Accenture on this.
|
Content Guide
