Print

Comment

Email

Digg

Del.icio.us

Reddit

Twitter

The success of the Indian software services sector has usually been ascribed to the wage differential between India and the West. However, the pricing advantage is increasingly being diluted by rising salaries in India, and, more recently, by the falling dollar. Yet, the Some companies have focused on particular niches, others have looked at acquisitions and alliances to reach better paying clients while still others have looked at internal processes and systems to nullify the impact of the disappearing wage differential.

Among companies that have been successful in surviving and even prospering despite the challenges of bigger competitors as well as the rising salary bills is Hyderabad-based Satyam. The company has been looking at acquisitions and alliances to develop a better reach to clients and domain expertise, and consequently improve billing rates.

Established in June 1987 by its founder and current chairman, B Ramalinga Raju, Satyam Computer Services offers a wide range of IT consulting and related services including software development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services.

The Secunderabad-based company renders its services to industries such as banking and finance, insurance, manufacturing, telecom, infrastructure, media, entertainment, semiconductor, healthcare, retail, and transportation. Satyam's current equity stands at Rs 178.9 crore with promoters holding 8.8%, institutional investors holding 58.8%, the Indian public holding 12.8%, and the balance 19.5% of the stake is held by others including foreign shareholders. Ramalinga Raju did his MBA from Ohio after he completed his B.Com from Loyola College at Vijayawada. Prior to setting up Satyam, Raju was engaged in the textile spinning and construction business apart from other family businesses.

Satyam's revenue for the year ended March 31, 2007 from services stood at Rs 6,485 crore, a growth of 35.3% as compared to Rs 4,793 crore in the same period last year. Net Profit for the period stood at Rs 1,404.6 crore, an increase of 42% from Rs 989.3 crore in the same period last year.

During the year Satyam Computer Services signed a seven-year multi-million dollar contract with Qantas, an Australian airline. The agreement covers application development and maintenance services for over 150 applications across a wide portfolio of technologies. During the period it established an R&D hub in Singapore to test and develop applications. The company also collaborated with Microsoft to provide Business Intelligence and Data Warehousing facilities in Singapore and Shanghai. Satyam formed an alliance with Austin, Texas-based Planview, an enterprise portfolio management software organization. It also formed an alliance with GigaSpaces Technologies to provide end-to-end solutions for service-oriented architecture.

Satyam partnered with EPiServer, a Swedish content management and portal software company. It entered into a strategic partnership agreement with NNIT, Denmark's consultancy in IT development, implementation and operations.

During the fourth quarter ended March 31, 2007, revenue from services stood at Rs 1,779.1 crore, an increase of 35.4% from Rs 1,313.6 crore on a y-o-y basis and an increase of 7.1% from Rs 1,661.1 crore on a sequential basis. Net Profit stood at Rs 393.6 crore, an increase of 38.3% from Rs 284.6 crore on a y-o-y basis and an increase of 16.7% from Rs 337.2 crore on a sequential basis.

During the quarter Satyam added 35 new customers including five Fortune Global 500 and US 500 customers resulting in the number of active customers during the quarter stand at 538 as compared to 469 in the same period last year. Satyam ended the quarter with total employee strength at 35,670, an addition of 1,265 associates including 600 trainees for Q4 '07. The number of associates including those of subsidiaries and joint ventures stood at 39,552.

During the quarter Satyam signed a five-year contract with Applied Materials to provide application development, maintenance, and support plus business transformation core technology services through a managed services delivery model.

For fiscal 2008 the company expects a revenue growth in the range of Rs 7,793 crore to 7,916 crore. We believe that given the increasing network of alliances and acquisitions the company has the ability to grow revenues without seriously impacting margins.

Satyam currently trades at Rs 467.8 discounting March 2008 EPS by 24.8 times and March 2009 EPS by 20.7 times. With stable margins and strong topline growth we believe that the company continues to remain in the investment zone. BUY

Sushanto Mitra
The author is director, Techcap India
sushanto@techcapIndia.com
The views reflected here are of the author and not of this publication.
No liability is accepted for losses based on the information presented here

Page(s)   1