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Satyam: Growth by legacy - Views on News from Equitymaster
 
 
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  • Apr 11, 2001

    Satyam: Growth by legacy

    One very interesting fact has come out of the results posted by Satyam for the fiscal FY01. It has seen a significant decrease in the revenues coming from e-business. The contribution of e-business to Satyam’s topline has come down from 30% in 3QFY01 to 23% in 4QFY01.

    For Satyam's 4QFY01 and FY01 numbers please follow this link

    It is clear that organisations are cutting costs and are not looking at venturing into newer projects. According to Satyam, the decrease in the contribution from e-commerce to the revenues was due to Dot Com clients vanishing. It seems even the large brick and mortar houses, in the wake of the downturn, have become cautious.

    The decrease in the demand for e-business solutions was offset by demand for services in the area of maintenance and integrating new technologies with existing mainframe and legacy systems. The traditional maintenance business grew to contribute 23% to the revenues in 4QFY01 compared to 18.5% during 3QFY01. The ERP business also grew marginally contributing 8% in the fourth quarter up from 6.8% during the third quarter in FY01. During the quarter, time and material contracts constituted 74% of the total business as compared to 76.8% during Q3 of FY01.

    Offshore business constituted 59% of the revenues during the 4QFY01, a marginal increase compared to 57% in the previous quarter. According to the company, the demand for offshore services among both new and existing customers is gaining strength. This is due to the fact that the company’s billing rates for the offshore development are one third to one fourth of that for onsite development.

    The contribution from repeat business has seen a good growth in the current quarter to 83% from 78% in 3QFY01. Satyam added 32 new clients in the fourth quarter, which is in line with its past performance. According to the company, total number of clients added for the year is 110, which averages to be about 28 clients per quarter a figure that is impressive. The top ten customers account for 49% of revenues as against 56% in the 3QFY01 due to increase in business from other customers and overall increase in total number of clients. Satyam has a dozen customers with billing rates of more than US$ 5 m annually, and around 44 clients with an annual billing of over US$ 1m.

    Addressing the concerns regarding the slowdown of the US economy the company admitted to the industry wide uncertainty over the growth prospects for FY02. While it had seen decline in business from the new economy companies, which seemed to have slowed down their decision making in technology application. However, in contrast, the brick & mortar or the old economy industry, seems to be moving towards the offshore model as a means of cutting cost.

    But the company, however, continues to be cautiously optimistic about its own growth prospects for the current fiscal year. Reading between the lines the company has seen business that is being lost from the dot coms to being offset by the old economy companies but it is not certain whether the trend will continue or not.

    The markets were expecting for negative announcements from the companies, one has certainly disappointed them, but for once the markets won’t mind in fact they may feel quite happy.

     

     

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