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Satyam: Our 'post-Raju' view - Views on News from Equitymaster
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Satyam: Our 'post-Raju' view
Jan 7, 2009

Today's confession of Satyam's founder and chairman has brought disgrace to the company. He has confessed that the company inflated its cash balances to Rs 53.6 bn at the end of September 2008 against the actual Rs 3.2 bn. The balance sheet also contained an accrued interest of Rs 3.8 bn, which was non-existent. It also had an understated liability of Rs 12.3 bn on account of funds arranged by Mr. Raju. Apart from this, the management has also overstated the company's performance during the July-September 2008 quarter. Against the actual operating margins of 3%, the company reported a figure of 24%.

Satyam came into limelight for its poor corporate governance in mid-December 2008, when the management announced its decision to buy - Maytas Infra & Maytas properties - two companies owned by the Chairman's sons, using Satyam's cash. The company had to take back this decision back in twelve hours after getting thumbs down from investors. Since then, bad news about the company is unearthing almost everyday.

Post the Maytas fiasco, the World Bank came up with its disclosure that the company had tried to bribe its officials and failed to maintain documentation to support fees charged for its sub-contractors. It may be noted that Satyam is also facing charges from its erstwhile client, Upaid, pertaining to forgery and fraud.

The ghastly disclosure made by Mr. Raju today has completely shaken our belief in the company. The recent events have tarnished the reputation of company and have exposed the malicious intentions of the promoter and management. The company is not only facing issues related to poor corporate governance but also have serious issues of forgery and breach of trust.

Considering all these facts and also that there is almost no clarity regarding the company's future, we have discontinued our research coverage on Satyam. However, we shall keep you posted on any key developments that the company undergoes in the future.

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