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Satyam FY01: A curtain raiser - Views on News from Equitymaster
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  • Apr 9, 2001

    Satyam FY01: A curtain raiser

    Satyam will declare its FY01 results tomorrow on the 10th of April 2001. The results are expected to be in line with those posted in the first three quarters of FY01. Due to the revenue recognition method in the software industry the impact of the slow down in the US economy, if any, might not be visible.

    Satyam for the fourth quarter continued its endeavour in becoming an end-to-end solutions provider. It partnered with i2 Technologies to implement solutions based on its TradeMatrix suit of products. Satyam is to build a competence centre that will provide e-business solutions based on TradeMatrix. The partnership would help Satyam enhance its capabilities in the area of enterprise applications and e-business consulting. According to an ITAA (Information Technology association of America) report the maximum demand for IT professionals is in the area of enterprise systems integration. This obviously gives an indication of the kind of solutions companies are looking for and Satyam should be able to benefit by strengthening its capabilities in enterprise applications space.

    QoQ Growth (%) Q1 Q2 Q3 Q4E FY00 FY01E
    Sales 2.0% 16.8% 20.2% 15.0% 79.1% 79.6%
    Operating Profit 13.1% 15.4% 30.0% 17.3% 71.4% 80.4%
    Net profit* 4.9% 29.0% 23.0% 25.6% 83.4% 119.6%

    *Other income and extraordinary items not included

    To expand its portfolio, Satyam, is a looking to enter into new verticals like the mobile Internet space and Bioinformatics. Satyam formed a joint venture with ideaEDGE Ventures under the name of Satyam ideaEDGE Technologies (SIT). SIT will provide technology solutions to companies in the emerging mobile Internet space. Over the next three years the size of this venture in terms of employees is expected to be about 300 strong. However, in the immediate future the mobile Internet space might not attract much of an IT spend, as companies, in a bleak economic scenario, might not be willing to invest in new technologies.

    With the digital mapping of the human gene a whole new world of possibilities has been created in the space of Bioinformatics. The genetic information that is stored digitally can be manipulated using computers. This would give rise to a demand for software solutions. To tap this market Satyam has entered into a relationship with Center For Cellular and Molecular Biology (CCMB). Again this area is in a very nascent state therefore, it will be quite sometime before any tangible business comes from this domain for the company. However, when it does, this relationship will help it to be ready to meet the requirements.

    Satyam and Ford Motor Company (Ford) have signed a Memorandum of Understanding (MoU) under which Satyam will provide a range of applications software services to Ford. Under the MOU Satyam will offer e-biz solutions, CAD/CAM services and applications software solutions to Ford and Ford Associated companies worldwide. Ford has selected Satyam as one of its partners to jointly develop IT solutions and manage Ford's IT Solution Centre (FITSI) in Chennai.

    On the logistics front Satyam has opened a center in UK to aid its delivery capability in the European region. The center for Enterprise Application Integration (EAI) will help organisations to integrate their Enterprise Resource Planning (ERP), Supply Chain Management (SCM), Customer Relationship Management (CRM) and e-business solutions seamlessly. The centre has around 500 associates. This move will help the company establish itself as a large and capable solutions provider in the European market. Having a development centre in Europe would certainly make those clients who are not so aware of the Indian software companies more comfortable in doing business with Satyam.

    Satyam eyeing the Middle East market has opened another facility at the newly developed Dubai Internet City. Satyam's Middle East Solutions Center was inaugurated in March. These areas that have not seen information technology penetration like the West have a market that offers vast opportunities. Satyam will use the center to offer end-to-end IT solutions to existing and potential customers.

      Q1 Q2 Q3 Q4E FY00 FY01E
    Operating margin (%) 35.3% 34.9% 37.8% 38.5% 37.0% 36.8%
    Tax/PBT (%) 0.8% 9.6% 9.8% 10.0% 4.3% 8.8%
    Net profit margin* 18.4% 20.4% 25.1% 27.5% 19.6% 23.4%
    Cash FDEPS 9 3 4 5 36 20.1
    FDEPS 8 2 3 4 23 16.7
    P/E (x) FY01E           14

    *Other income and extraordinary items not included

    The main concern with Satyam is its loss making subsidiaries. Satyam it seems is taking steps to improve things on this front too. It has sacked the chief of the US arm for VisonCompass and 39 others in a move to cut costs as a part of re-structuring the subsidy. This will benefit VisonCompass in terms of reduced operating costs, which is expected to go down by nearly 70%. Satyam is also looking at reducing its exposure to the subsidiary by getting other investors for the subsidiary. Most of the subsidiaries are making losses. Satyam clocked a profit of Rs 1,349 m for FY00 and the share of the losses in its subsidiaries amounted to Rs 737 m.

    Satyam might be able to show a performance similar to that of 3QFY01 with an improvement in operating margins. One of the factors that would aid the improvement in operating margins is the fact the employee costs might not grow at paces seen previously. This is due to the large number of layoffs in the US, which has caused the supply situation to ease.

    Satyam that has about 77% of its revenues coming from the US is taking conscious steps to consolidate on newer geographies and enter new domains. This might just help Satyam to continue to perform much better than the industry average.



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    Jul 3, 2013 (Close)


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