Analysts don't see surprises in Mahindra Satyam results

Mahindra Satyam, formerly known as Satyam Computer Services, is expected to announce its reinstated numbers this week, and analysts expect the company to announce a revenue rate of $1.2-1.3 billion (Rs 5,450-5,900 crore).

The estimate is more or less in line with what the new management (Tech Mahindra) had projected in June 2009. It had indicated that revenue would be around $1.3 billion in June, said a CLSA report. “From indications of $1.3 billion in steady state revenues in June, the Tech Mahindra management has progressively brought down revenue outlook to $1.1-1.3 billion in August, which again was reduced to $1-1.2 billion in October,” said Bhavatosh Vajpayee and Nimish Joshi of CLSA Asia Pacific.

Mahindra Satyam will announce its annualised audited results for FY09 and FY10, after a period of 21 months. This, after its former chairman Ramalinga Raju confessed to overstating the firm’s assets by $1 billion in January 2009.

The last reported numbers by Satyam Computer were for the second quarter of FY09. The Raju-led management had guided for a revenue run-rate of $2.55 billion (growth of 19 per cent and 21 per cent). For the quarter ended September 30, 2008, the company reported revenue of Rs 2,819.29 crore and net income of Rs 580.85 crore.

While analysts believe the reinstatement of revenue announcement will bring the much needed clarity on the financial front to deal with customers, but the annual financials for FY09 and FY10 alone would not properly represent the current business health of Satyam.

“Satyam has seen client exits and project ramp-downs through much of FY10. We believe that quarterly revenue run-rate has likely gone down through FY10, and 4QFY10 financials are a more correct barometer of Satyam’s business. Absence of 4QFY10 financials will undermine any attempt to forecast future financials for now,” said the CLSA Asia Pacific report.

According to a J P Morgan APAC Equity Research study, Mahindra Satyam could have an annualised revenue run-rate of $1.2-1.3 billion. “Based on a reasonable billing rate assumption of around $55 per hour per person (onsite) and around $20 per hour per person (offshore), a 20-25 per cent discount to Infosys’ billing rate (both onsite and offshore) and an headcount assumption of 30,000 as the company had indicated in April 2010 that it had 28,000 employees, we assume an annualised assumption of $1.2-$1.3 billion” said Nishit Jasani and Viju George of JP Morgan.

Employee attrition will again be watched closely. The first phase of attrition that continued till August 2009 impacted the top management. The company managed to hold on to middle manager and junior employees but as the markets have opened, analysts feel attrition within the company would be higher than the industry standards.

“I think one of the important details we would like to see is the attrition rate at Mahindra Satyam. We do know that during the Q3 (July-September) lot of people left the company. I am also hoping that the company gives quarter-on-quarter break up at least for the Q4FY10,” said Pralay Das, Analyst-IT at Elara Capital.

“A recent conversation with a senior Satyam employee suggested that Satyam’s much hallowed “SAP” practice is going through highly turbulent times due to high attrition. The number of people in that practice has come down to just 800 from a strength of around 4,500 in January 2009. Former head of Satyam’s SAP practice, Manish Mehta, recently joined Patni. Our conversations with head-hunters suggest that a couple of Tier-I IT companies had given them specific mandates to poach employees from Satyam in the January-May 2010 time frame,” point out the CLSA report.