Satyam is India’s fourth-largest software services exporter. The company’s service offerings include application development and maintenance (44% of revenues), consulting and enterprise business solutions (45%), extended engineering solutions (7%) and infrastructure management services (4%). Over the past couple of years, the company has managed to move up the software value chain and also the topline and profits have grown at CAGR of 34% and 33% respectively.
Off late the company has been into limelight for all the wrong things. Some of the incidents have dented the credibility of the company and also the trust the investors had in the company. Concerns about a lack of transparency and worries about absence of strict corporate governance practices are also felt by the investors.
First on the list was the unprecedented move by the company to buy companies (Maytas Infra & Maytas properties) run by the sons of the company’s founder chairman
Ramalinga Raju for US$ 1.6 bn. This move raised concerns surrounding corporate governance, the decision making capabilities of the management and also the active involvement of the independent directors on the board. The investors strongly opposed the move and the company was forced to take back their decision. But still many questions would arise… Was it to bail out the infra companies? Why go in for the infra business when your core business is IT? Or is it like this that the IT business has less scope ahead? The answers to this are not very encouraging even though the management kept saying the prospect was good in longer term.
The other bad news for the company was from the World Bank as it declared SATYAM ineligible to receive direct contracts from the Bank under its corporate procurement program for a period of eight years. Satyam was declared ineligible for contracts for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors. The Bank's decision was effective in September 2008 and followed a temporary suspension that took effect in February 2008.
The World Bank, which had signed a $100 million billing per annum contract, had been an important client for Satyam. Since 2003, Satyam had been writing and maintaining all software for World Bank across all locations. This also included maintenance of software in back end offices.
For Satyam to restore its reputation after an investor revolt over attempt to buy Maytas Properties and Maytas Infra would take a long time even after the company offered a share buyback to try to return some cash to investors but its shares have continued to languish. Also one concerns of the state of IT business in Satyam after the World Bank issue and see how would its present IT clients react to this? Will the existing clients renew their contracts or will the company be able to get in new clients? Well the company has fallen into big mess and would take time to come out of it but difficult to say when.
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