The confidence of the Indian software sector is worth emulating by all. Despite a falling dollar, fears of recession in the US economy as well as the huge pressure on wage bills and real estate costs, the never say die spirit continues to keep these companies in good stead.

The top players in this sector continue to focus on reducing costs and developing newer markets, so that they can mitigate the effects of an increasingly unfriendly environment for the sector as a whole. Among the companies that have weathered the dotcom crash, Satyam continues to remain confident and has, in fact, raised its revenue and profitability estimates for the last quarter.

Established in June 1987 by its founder and current chairman B Ramalinga Raju, Satyam Computer Services (Satyam) 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. Satyams current equity stands at Rs 178.94 crore with promoters holding 10.87%, institutional investors and corporates holding 15.47 %, the Indian public holding 13.79% and the balance 60.79% of the stake being held by others.

Satyams revenue for the year ended March 31, 2007 from services stood at Rs 6,485 crore, a growth of 35.31% as compared to Rs 4,793 crore in the corresponding period last year. Net profit for the period stood at Rs 1,408 crore, an increase of 43.38% from Rs 982 crore in the corresponding period last year.

During the year, Satyam signed a seven-year multi-million dollar contract with Qantas. The agreement covers application development and maintenance services for over 150 applications across a wide portfolio of technologies. This agreement follows the Oracle e-business suite contract between Qantas and Satyam for implementing e-business systems. During the period, it established an R&D hub in Singapore to test and develop Applications. Satyam collaborated with Microsoft to provide Business Intelligence and Data Warehousing facilities in Singapore and Shanghai.

During the period, Satyam appointed Timothy Montgomery as senior vice president of Global Insurance Practice. Satyam has over 20 years of experience in IT outsourcing, both offshore and onshore, and implementing offshore outsourcing programs for Fortune 500 companies. The company also appointed Robert Baginski as senior vice president of Global Marketing and Communication. He will lead Satyams marketing, communications, and branding initiatives worldwide. Satyam also appointed Sreenidhi Nick Sharma as senior vice president for its Infrastructure Management Services, the US.

The Group has posted a net profit of Rs 433.6 crore for the quarter ended December 31, 2007 as compared to Rs 337.2 crore for the quarter ended December 31, 2006, showing an increase of over 28%. Total revenues have increased from Rs 1,671.3 crore for the quarter ended December 31, 2006 to Rs 2,266.05 crore for the quarter ended December 31, 2007, showing a growth of 35%.

During the quarter, Satyam announced its collaboration with Cisco to explore a new venture that will optimize, deploy, and manage solutions for handling medical distress solutions and health management solutions for global markets. Similarly, Satyam bagged a contract with Fujitsu Services to provide IT services to Reuters as part of a 10-year, $1 bn Internal Information Systems Transformation Program. Recently, Satyam launched the next Enterprise Applications Delivery Model, Software as a Service (SaaS) for SMEs. The company will also be setting up a Process Manufacturing Innovation Center of Excellence (PROMICE) at Hyderabad to help process manufacturing companies to exploit information technology in the areas of product and process innovation and improve their competitiveness.

Recently, Satyam announced that it has entered into a definitive agreement to acquire Bridge Strategy Group for $35 mn. Similarly, Satyam entered into a definitive agreement to acquire 100% stake in Nitor Global Solutions of the UK, a niche-consulting firm providing Infrastructure Management Services (IMS), for up to $5.5M in cash.

Satyam has increased its revenue guidance for fiscal year 2008 to $2.10 bn from $2.08 bn, a 42% growth over fiscal year 2007. Corresponding revenue growth under Indian GAAP is expected to be from 29-29.2%. EPS for the full year is expected to be Rs 25.5, implying a growth rate of 18.9%. For Q4, FY 08, under Indian GAAP, corresponding revenue growth rate is expected to be in the range of 5.3-5.8% on a sequential basis.

Satyam shares currently trade at Rs 400, discounting its FY 08 earnings by 15.5 times. Given the over 40% revenue growth and a not so significant drop in margins, we believe that the stock has scope for long tem appreciation. Outperformer.

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

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