NAME: RISHIT DALSANIA BATCH: FC4 (1)

POST MERGER PROSPERITY OF SATYAM

Scam of Satyam: When Ramalinga Raju confessed his monumental fraud on January 7, 2009, he not only brought Satyam Computer Services, India's fourth-largest information technology company, dangerously close to implosion but also turned confused the lives of his 50,000 or so employees. The confession changed everything, almost overnight. Landlords refused to give houses on rent to Satyam employees; they were blacklisted by banks for credit cards and personal loans. As banks froze all credit lines, employees had no option but to settle airline and travel bills with their personal credit cards. Acquisition by Mahindra: On 13 April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam" with a new corporate website www.MahindraSatyam.com. C.P Gurnani is the current CEO. When Tech Mahindra formally took over Satyam (it has since been renamed Mahindra Satyam) in mid2009, it was not just a financial turnaround that needed to be done or an irregularity that had to be set right -- the pride of a people had to be restored. Problems to look upon: The first task, of course, was to close the book on the scam. The company was being investigated by Andhra Pradesh's Crime Investigation Department as well as the Central Bureau of Investigation, Serious Frauds Investigation Office and Enforcement Directorate. Also sniffing around were the Securities & Exchange Board of India, Securities Exchange Commission of the US, the income tax department, registrar of companies and Software Technology Parks of India. All files were in the possession of these agencies. About 100 forensic experts drawn. All told, 30 terabytes of information was assessed. Kept in hard copies. Over 2 million emails were reviewed, 300 hard disk drives imaged, and 1 billion lines of transaction data put under the lens. More than 200 bank accounts were analyzed and 7,000 consumer contracts reviewed.

At the end of the day, 7,500 inflated invoices were found which had caused income and profit to be overstated by Rs 6,500 crore (Rs 65 billion). This resulted in over 6,000 reconciliations in bank accounts and over 200,000 adjustments in the books because over 300 different income heads were impacted. The second challenge was to hold on to customers. When the scam broke out, Satyam had about 650 customers; the tally now stands at around 350, including the 44 new ones. Thus, almost 350 customers have left the company. The other portion was cost-cutting. With inflated income taken out and almost 350 customers walking out, the workforce of 50,000 was too large for Mahindra Satyam. So, when companies moved projects away from Satyam, they were requested to take the teams along. According to Murty, over 80 per cent of the departing customers agreed to this request. About 6,000 people left of their own agreement. A separation scheme was also put in place, which was accepted by 9,000 people. As a result, Mahindra Satyam has 24,000 people on its rolls now (27,000 if subsidiaries are included). But the roll call is still way too long. Manpower shouldn't account for more than 55 per cent of an efficient software company's revenues. (Rent, travel and communication adds up to another 15 per cent; the rest is operating profit.) For Mahindra Satyam, it is still 70 per cent. Coupled with rent, travel and communication expenditure of 20 per cent and more, it explains why the company's EBITDA margin was 8.3 per cent in 2009-10 and 5.7 per cent in the first half of 2010-11. That the company stopped fresh recruitment from campuses didn't help either -- the average salary was higher than peers who pick up fresher in large numbers. It is only in the last six months that Mahindra Satyam has returned to campuses and mopped up 3,000 people. This year could see 4,500 campus recruitments.

Legacy behind: The company's core strength, its delivery capabilities, was intact. Had it not been for them, the run on Mahindra Satyam could have been worse. Mahindra Group vice chairman Anand Mahindra and Gurnani took over from where these directors had left off. Between the two, they met all the large customers to convince them to stay with the company. In the first six months, Gurnani met over 150 customers across the globe. Customer meets were organised in London and Chicago to answer their queries. In November 2009, the company conducted a customers' delight survey; its score was 4 out of 5. This, claims was better than the industry average of 3.5-4.

Mahindra Satyam Turnaround:

Shares of Satyam have fallen 40 percent since Jan. 6, 2009, compared with a 93 percent gain in the Bombay Stock Exchanges benchmark Sensitive Index in the period. Shares of Tech Mahindra rose 8.3 percent to close at 787.95 rupees in Mumbai trading. The company had reported a consolidated net loss of Rs 233.3 crore for the JulySeptember quarter of 2010. Speaking at a press conference, Vineet Nayyar, chairman of the company said the consolidate cash and cash equivalents at Rs 30 crore compared to Rs 26 crore. We will take three [years] for a turnaround, he informed. Even though the company got 245 crores profit in Q4 for 20102011, but due to outside payments nearly 570 crores for SEK,UPAID and Class Action Suit in Q4 (Total 641 crores for the year 2010-2011 ),the company had reported a consolidated net loss of Rs 327 crore for the JanuaryMarch quarter of 2010-2011.IT firm Mahindra Satyam posted a consolidated net profit of Rs 225.2 crore for the quarter ended June 30, 2011. During the quarter, the company added 2,172 people (net), taking total headcount to 31,438 as of June 30, 2011. The company added 36 new customers during the quarter. The total headcount of the company stood at 32,092 as of the quarter ended September 30, 2011 during which net addition of 654 personnel took place. The company added 188 employees in quarter three ending December 31, 2011 and recorded 29.4% quarter-on-quarter in its consolidated net profit of 308 crore. It received new orders from 215 customers with contract values totaling $380 mn. In the December 2010 quarter, the company's top line rose 3% to 1,280 crore against the previous quarter, helped by a 2.5% volume growth. Its operating profit margin improved 90 basis points to 3.4%. The encouraging performance was led by a growth in the healthcare and manufacturing verticals. The company has a strong cash balance of 3,000 crore in 2010-11. This should support its plans to grow inorganically and meet the capex target of 200 crore for the next six months. Now Mahindra Satyam has made merger with Techmahindra and growing and prospering with high and fly.

THE END