Of the software majors, 3QFY02 could turn out be a turning point for Satyam. The company made a strategically critical move by tying up with CSC (Computer Services Corporation). This is perhaps for the first time that an Indian IT services company tied up with a competitor in the west.
The logic behind the alliance is very simple. The European and American IT services companies are finding it increasingly difficult to compete with Indian majors. This is due to the fact that the Indian companies like Wipro, Satyam and Infosys provide the same services at a much lower cost, thanks to the advantage they have in terms of lower employee costs. Thus, CSC will now be able offer its services at a very competitive rate by outsourcing the work to Satyam. Satyam on the other hand, will be able to leverage on CSC’s brand and strong presence in the markets like US and Europe. Though the contract has started on a smaller scale it is likely to be ramped up in the future.
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The company also launched e-Valuate, a mobile insurance and loan recovery solution. Satyam's solution enables wireless connectivity between the mobile work force and enterprise systems. Increasingly organisations, especially, those in logistics are faced with the requirement of transferring data with the work force on the field. The recovery solution will target these kinds of organisations. However, it is mainly focused on financial institutions. By implementing e-Valuate these organisations can eliminate inefficiencies, decrease the risk of fraud, save costs and also improve the quality of service.
Satyam broadened its service offering by tying up with Autonomy Corporation that provides infrastructure software for the enterprise. According to the agreement, Satyam will offer consulting and systems integration services to architect knowledge management solutions based on Autonomy's infrastructure technology. With organisations increasingly become knowledge intensive, the need to capture in the organizational know-how is gradually becoming critical to their performance. This is due to the fact that when key employees leave, certain amount of organizational knowledge is Iost, and organisation does suffer as a consequence.
Autonomy's software has the ability to analyze text & voice, identify and rank main concepts within it. It can then automatically categorize, link, personalize and deliver the information. Thus, the technology helps in capturing, storing, analysing and retrieving unstructured information. According to estimates, unstructured information doubles in quantity every three months. Thus, Satyam hopes to tap this burgeoning need using Autonomy’s technology.
It also added collaborative commerce solutions to its portfolio. Satyam tied up with Adexa provider of collaborative commerce solutions. Manufacturing organisations, especially, those that manufacture products need to co-ordinate information flow throughout the product development life cycle. Design needs to communicate with manufacturing and this department in turn needs to communicate with support. Apart from this, at any point of time, information exchange with support functions like procurement is also critical.
Again the need to work closely with the suppliers and customers has given rise to a demand for software that will help commerce or business to be done in a more synchronized or collaborated way. Collaborative product commerce will result in increased efficiency and lower costs for the organisations. Companies are adopting collaborative commerce due to the fact that they work across geographical boundaries. Hence, the need for seamless information flow has become mission critical. Adexa's iCollaboration suite is a portfolio of optimization, collaboration and business process automation solutions that meet organizational needs of collaborative supply chain commerce.
The company also won a contract from Reuters UK for software application maintenance and support services for Reuters IS (information systems) applications. The contract also allows Satyam to tap opportunities from other divisions and subsidiaries of Reuters worldwide. Satyam will provide software support, maintenance and development services for the IS department of Reuters.
Satyam opened an offsite development centre at Sydney to provide IT services to local clients. The center will also host offshore projects for clients located in New Zealand and other countries in the region. The purpose of setting up the development centre in Australia is to tap the business potential in the Asia Pacific region. The region is expected to be one of the fastest growing markets for IT services. However, 3QFY02 numbers that have come in so far indicate considerable weakness in the region.
The company also partnered with Johns Hopkins, Johnson & Johnson and Medtronic to provide IT services for specialty medical societies worldwide. Satyam picked up a stake in MedBiquitous Services. The company will create XML standards to build online communities. Satyam's initial investment will be US$ 1 m for a 7% stake and an option to increase it to US$ 2.5 m for a 14% stake. Satyam will also provide technical inputs to the company. The move is aimed at strengthening Satyam’s presence in the Healthcare sector.
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We expect the company’s topline to grow by 1% sequentially. There is likely to be intense pressure on operating margins due to pricing pressure. Therefore, we expect operating margins to decline quite sharply. The company’s net profits are expected to fall by 18% on a sequential basis. However, this is due to the fact that the bottomline was higher in 2QFY02 on the back of other income. On a YoY basis, revenues are expected to grow by 31% and net profits are expected to grow by 25%. At the current market price of Rs 273, the stock is trading at a P/E multiple of 20x 2QFY02 estimated earnings. The stock price has run up quite sharply in the past few months on expectations of the company’s sale of stake in Sify. If the deal comes through at a favourable price for the Satyam, the stock price is likely to see further improvement.