The scam-hit IT company surprised the investors and analysts by posting better than expected financial results for the December 2008 quarter. As a matter of fact, the revenues stood at around Rs 24.1 billion and consolidated net profits were about Rs 1.6 billion. On extrapolation, this suggests an annual revenue figure of over Rs 80 billion.
The results look much better than expected. In January 2009, company had revenue and profit of just Rs 6.81 billion and Rs 40 million respectively. For the month of February, these figures were around Rs 6.76 billion and Rs 520 million respectively. These abysmal figures can be seen as immediate aftereffects of the enormous accounting scam perpetrated by the defamed founder of the company.
It seems that the worst is over for the company as investors also welcomed the good results enthusiastically with stock hitting the 10% upper circuit on BSE on Tuesday. The stock closed at Rs. 66.85 on BSE and at $3.64 on NYSE rising 9.95% and 33.8% respectively.
This can be attributed to increased clarity about the company's true financials and investors' confidence on the actions of new board and owner. This brought good news to the new owner Tech Mahindra as it also saw its stock closing at Rs 744 gaining 25% on BSE. It is worth noting that Tech Mahindra's shares have risen by an extraordinary 111% in the past 4 weeks, which suggests investors are becoming more and more positive about the acquisition.
Amidst all the euphoria, the analysts looked wary about the unexpectedly great operating margins of the order of 9% to 19%. This is extremely good as compared to the about 3% fall in EBITDA margin that was reported by Ramalinga Raju in January this year. Some analysts believe this increase in margin was due to substantial decrease in head-count.
As a point of caution, it is important to note that company saw a 14.3% loss of revenue and 72% loss in profit on a sequential basis. The board disclosed that while the company has gained new business orders worth Rs 18 billion from 215 of the existing customers, contracts worth as high as Rs 9 billion from 66 customers were either terminated or expired. The legal liabilities from the US investor law suits and Rs 12.3 billion claims from former owners continue to plague the company. The company is still overstaffed to the extent of 10,000 employees though it already lost 9,457 employees in the first two months of this year. Most importantly, the new owner which disclosed all this information to the shareholders as a matter of good corporate governance has insisted that these facts and figures about the results are un-audited and actual results may be different.
In conclusion, though there appear some signs of recovery for the company, its is still too early to be bullish about the prospects, as a lot of unresolved issues continue to plague the firm, which was doubly hit, by recession on one hand and biggest Indian accounting scam on another.
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