briton - satyam case

8/8/2019 BRITON - Satyam Case

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MELANGE 09

EVENT SPINNER

TEAM NAME- BRITON

GROUP MEMBERS:

KARTHIK MURTYVISHAL NAIDU

RAJA.K

Satyam Computer Services LimitedPage 1
http://upload.wikimedia.org/wikipedia/en/3/30/Satyamlogo.jpg


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SATYAM COMPUTERSERVICES LIMITED

INTRODUCTION: Founded in 1987 by B.Ramalinga Raju.

Indias 4th largest IT Software and Services Company.

Satyam(NYSE: SAY) is a leading global business & IT servicescompany .

Satyam development and delivery centers in the US, Canada,

Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia,Singapore, and Australia

Satyam has strategic technology and marketing alliances with over50 companies.

Apart from Hyderabad, it has development centers in India atBangalore, Chennai, Pune, Mumbai, Nagpur , Delhi , Kolkatta,Bhubaneswar, and Vishakapatnam.

Satyam BPO Limited (Satyam BPO), a majority-owned subsidiary ofthe Company, is engaged in providing business processoutsourcing (BPO) services.

Satyam operates in two segments: IT services and BPO services.

On January 4, 2008, the Company acquired Nitor global SolutionsLtd. On April 4, 2008, it acquired Bridge Strategy Group LLC.



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SERVICES:Today, businesses demand global vision, an in-depth understanding ofcustomers and suppliers, demonstrated thought leadership and aconsultative partnership approach to offer the highest possible returnson IT investment. We help businesses achieve these ends. Workingclosely with our customers as transformation partners, we deliver andimplement innovative software solutions across a number of technologyplatforms.

Satyams Public Services

Satyam is one of the very few global IT service providers to have adedicated vertical on Public Services as a sector.

Over the years, Satyam has developed a deep understanding of thecomplex structures and the processes within this sector. Thisunderstanding combined with vast industry experience, implementationof best practices, competencies in cutting-edge technologies helps usunderstand the uniqueness of this sector and complement the same withmeaningful solutions that are comprehensive, innovative and effective.

With the right blend of domain and technology specialists, we aim to

partner with these organizations across the globe to support theirstrategic and IT initiatives and provide innovative solutions that arefuturistic in approach and optimal in cost.

Global Focus



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Satyam's Public Services vertical business unit has been facilitating thetransformation of government and other public sector organizationsacross the globe.

Different regions in the world are characterized by uniqueness in theirculture, language, economic development, technological advancements,

level of IT maturity, social, legal, political and regulatory frameworks.Thus the expectations from the public sector also vary accordingly.

We, at Satyam, understand these complex structures and we have madehuge investments to study these regional frameworks. We have aspecial Region-wise focus to cater to the specific needs and demands ofevery region, viz., Americas, Europe, Middle East, Africa, APAC, ANZ andSouth Asia.

GROWTH STRATEGIES:

Acquisitions Strategy Diversification strategy

Geographical Diversification

Human resource

Customer Diverisfication

Vertical Strategy

SWOT ANALYSIS OF SATYAM:STRENGTHS WEAKNESS

Largest IT Software &service provider

Global solutions provider.

More no. of clients all overthe world.

Belief on existing projects

Efficient service provider

Internal belief between theemployees

Investors have bad sentimentson markets

Employee salary & job security

Poor relationship withshareholders

Unable to manage operations

Loss of goodwill withstakeholder

OPPORTUNITIES THREATS



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Induce strong beliefs aboutsatyam on clients &Investors.

Ethical rules & regulations

Make transparent

environment Gain the Market Share

Give efficient result onexisting projects.

Bankruptcy will occur

Loss of negotiation amongclients

Good customers may shift

Inability to scale-up, retain the

talent. Loose the entire Market share

Importers Limitations

Growth of all IT sector mayaffect

SATYAM GROWTH FY 2003-2007:



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CONTROVERSIES OF SATYAM:



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SCAM INEVITABLE DUE TO

The profit margins were as low as 3% as declared bychairman in his letter to the Board

Maximizing the returns of the stakeholders

High interest of Promoter family in the company &hence to protect it from being taken over.

Very Stiff competition from Infosys , Wipro and TCS.

SATYAM-MAYTAS DEAL:

Maytas was a company owned by the Raju family with a majoritystake of 36%.

Chairman of Satyam ,BR Raju proposed to purchase Matyas forCash.

E&Y did the valuation of Maytas at Rs.6523 crore while PWC hadaudited the statements.

BR Raju proposed the deal with an intention to cover-up the

inflated cash balance

The investors objected the deal as entire cash of Satyam wasbeing transferredTo promoters through Matyas.



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BR raju called off the deal to avoid getting caught and beingexploited.

ENTITIES INVOLVED:

The auditors

The promoters

Other Senior management people

The SEBI

The bankers

Directors and independent directors

Shareholders and media

Investment bankers

Government

ACCOUNTING SCANDAL OF SATYAM -2009:

B.Ramalinga Raju, the architect of the mega fraud that has broughtIndias fourth largest IT services company Satyam Computer to itsknees, has been arrested on charges of criminal breach of trust, criminalconspiracy, cheating, falsification of record and forgery.

On morning of 7 January 2009 at 10:53AM (IST), Satyam ComputerServices Ltd's Chairman Mr.Ramalinga Raju resigned after notifyingits board members and SEBI that he falsified accounts and assets. The shares of the IT company were down by more than 82%touching low of Rs 30.70.

Immediately following the news, DSP Merrill Lynch (Now with Bankof America) terminated its engagement with the company asCredit Suisse suspended its coverage of Satyam.

Satyam's auditing firm PricewaterhouseCoopers will be scrutinizedfor complicity in this scandal.

The truth came to fore when Mr.Raju sent a letter to the boardmembers, copying it to SEBI. Letter stated that Satyams balance

http://indiablogs.searchindia.com/2009/01/07/we-are-big-time-crooks-confesses-satyamhttp://indiablogs.searchindia.com/2009/01/07/we-are-big-time-crooks-confesses-satyam


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sheet as on Sep 30, 2008, carried an inflated (non-existent) cashand bank balances of Rs 5,040 crore (as against Rs 5,361 reflectedin the books). Further, it carried an accrued interest of Rs 376crore which was non-existent. An understated liability of Rs 1,230crore on account of funds was arranged by himself. An over stated

debtors position of Rs 490 crore (as against Rs 2,651 crore in thebooks).

For the second quarter ended Sep 30, 2008, the company reporteda revenue of Rs 2,700 crore and an operating margin of Rs 649crore (24% of revenues) as against the actual revenues of Rs 2,112crore and an actual operating margin of Rs 61 crore (3% ofrevenues). This had resulted in artificial cash and bank balancesgoing up by Rs 588 crore in the second quarter alone. The gap inthe balance sheet had arisen purely on account of inflated profitsover a period of last several years (limited only to Satyam

standalone, books of subsidiaries were reflecting trueperformance).

As per Raju, "What started as a marginal gap between actualoperating profit and the one reflected in the books of accountscontinued to grow over the years. It has attained unmanageableproportions as the size of company operations grew significantly(annualised revenue run rate of Rs 11,276 crore in the Septemberquarter of 2008 and official reserves of Rs 8,392 crore).

As the promoters held a small percentage of equity, the concern

was that poor performance would result in a takeover, therebyexposing the gap. The aborted Maytas acquisition deal was the lastattempt to fill the fictitious assets with real ones.

It was like riding a tiger, not knowing how to get offwithout being eaten.Raju had made a task force comprising its members Subu D, TRAnand, Keshab Panda and Virendra Agarwal and AS Murthy, Hari Tand Murli V in the last few days before letting news out, to addressthe situation arising out of the failed Maytas acquisition attempt.

Ram Mynampati was made the Chairman of this task force toimmediately address some of the operational matters on hand.Merrill Lynch was entrusted with the task of exploring somemerger opportunities, which it later walked out cancelling theagreement.



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Raju says that neither he nor the managing director sold anyshares in the last eight years except a small proportion sold forphilanthropic purposes.

A net amount of Rs 1,230 crore was arranged to Satyam (not

reflected in the books) to keep operations going by resorting topledging all the promoter shares and raising funds from knownsources by giving all kinds of assurances. Significant dividendpayments, acquisitions, capital expenditure to provide growth didnot help matters. Every attempt was made to keep the wheelmoving and to ensure prompt payment of salaries to theassociates. The last straw was the selling of most of the pledgedshares by the lenders on account of margin triggers.

Raju also acknowledged that neither he nor the managing directortook have benefited in financial terms on account of the inflated

results. He confessed that none of the board members had anyknowledge of the situation in which the company is placed.

Acknowledging the facts, Satyam's official website says "We areobviously shocked by the contents of the letter. The senior leadersof Satyam stand united in their commitment to customers,associates, suppliers and all shareholders. We have gatheredtogether at Hyderabad to strategize the way forward in light of thisstartling revelation said Mr. Ram Mynampati, Interim CEO(pending ratification by the Board) and Member of the Board, whohas been mandated by the Board to steer the company through

this crisis."

UNDERSTANDING THE SCAM :



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1. The balance sheet carries as of September 30, 2008

a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore(as against Rs 5361 crore refglected in the books)



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b) An accured interest of Rs 376 crore which is non-existent

c) An understated liability of Rs 1,230 crore on account of fundsarranged by me

d) An over stated debtor position of Rs 490 crore (as against Rs2651 reflected in the books)

2. For the September quarter (Q2) we reported a revenueof Rs 2,700 crore and an operating margin of Rs 649 crore(24 per cent of revenues) as against the actual revenues ofRs 2,112 crore and an actual operating margin of Rs 61crore (3 per cent of revenue). This has resulted in artificialcash and bank balances going up by Rs 588 crore in Q2alone.

The gap in the balance sheet has arisen purely on account ofinflated profits over a period of last several years (limited only toSatyam standalone, books of subsidiaries reflecting trueperformance). What started as a marginal gap between actualoperating profit and the one reflected in the books of accountscontinued to grow over the years. It has attained unmanageableproportions as the size of the company operations grewsignificantly (annualized revenue run rate of Rs 11,276 crore in theSeptember quarter, 2008 and official reserves of Rs 8.392 crore).The differential in the real profits and the one reflected in thebooks was further accentuated by the fact that the company had

to carry additional resources and assets to justify higher level ofoperations thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promotersheld a small percentage of equity, the concern was the poorperformance would result in a takeover, thereby exposing the gap.

It was like riding a tiger, not knowing how to get offwithout being eaten.

The aborted Maytas acquisition deal was the last attempt to fill thefictitious assets with real ones. Maytas investors were convincedthat this is a good divestment opportunity and a strategic fit. OnceSatyams problem was solved, it was hoped that Maytas paymentscan be delayed. But that was not to be. What followed in the lastseveral days is common knowledge.



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SATYAMS POSITION ON January 7,2009



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IMPACT ON CLIENTS:

Risks to Buyer-Satyam gets acquired;Single entity acquires Satyam

Loss of negotiating leverage with the acquirer as compared withSatyam

Loss of Key personnel/Senior management from Satyam mayimpact relationship

Potential increase in cost of services for additional scope of work

Scalability may become a challenge if the acquirers businessstrategy is not aligned

Satyam goes Bankrupt: Satyam will be unable to manage operations and pay its

employees salaries.

Inability of satyam to service requirements per contact will havesignificant impact on Buyers business.



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New Board of Directors Appointed at Satyam

Mr. Deepak S. Parekh, Chairman of HDFC Mr. Kiran Karnik, former President of NASSCOM Mr. C. Achuthan, Director at the National Stock Exchange, former

Member of SEBI, and former Chairman of Securities AppellateTribunal.

PERFORMANCE/ GROWTH DURING FY 2009



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SATYAMS CURRENT POSITIO N ON MARKET

NEEDS TO BE DONE TO PREVENT ANOTHERSATYAM

Tighter rules for accounting and corporate governance,

including appointment of independent directors by selection

committees, and

greater oversight from regulatory and government authorities.



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Noble Group also suggests separation of audit and consultancyfunctions at companies, and quicker publication of annual reports.

SUGGESTIONS & RECOMMENDATIONS:

First of all, the new board of Directors and CEO can arrange ameeting with the employees and make them beliefs.

They also motivate all the employees and make them confident intheir work.

They make sure that employees should get the salary every month

.

They should make transparent environment which will help theemployees stick to the company.

They should take Governments and SEBI guidelines for newauditing company.

They should respect the word SATYAM - TRUTH in the future andbe ethical in their business.

They should complete the existing projects ethically and ineffective manner.

Right now, they can avoid the projects which involves high cost &involvement.

Also, the company have to create good sentiments in the Marketby through advertising .This will help to regain the investorsconfidence.

Existing shareholders should be paid their dividends properly.

They should stick to the rules and regulations irrespective of thepositions held.

They should be true to the accounts of the company .



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They should plan for long term prospective point of view.

They also get some views and opinions from public , investors ,and customers.

REFERENCES:- http://satyamscam.in http://satyam.com/ http://business-standard.com/ http://moneycontrol.com http://economictimes.indiatimes.com

http://satyamscam.in/http://satyam.com/http://business-standard.com/http://moneycontrol.com/http://economictimes.indiatimes.com/http://satyamscam.in/http://satyam.com/http://business-standard.com/http://moneycontrol.com/http://economictimes.indiatimes.com/

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