Satyam to 18 more months to recover

Nearly 18 months after the Mahindra Group acquired Satyam Computer Services following the admission of fraud by the latter's then chairman B Ramalinga Raju, the new management of Mahindra Satyam surprised analysts while restating the company's financials for FY09 and FY10.

Even though the company had a net worth of Rs 1,800 crore (Rs 18 billion) and revenues of Rs 5,481 crore (Rs 54.81 billion) in FY10, from a negative net worth of Rs 880 crore (Rs 8.8 billion) and revenues of Rs 8,812 crore (Rs 88.12 billion) in FY09, the company clearly admitted that the extent of the irregularities was so deep, that it would take at least 18 more months to recuperate.

Net losses after tax in FY10 and FY09 respectively stood at Rs 124.6 crore (Rs 1.24 billion) and Rs 8,176.8 crore (Rs 81.76 billion).

However, due to the restatement efforts and the extent of the fraud, the company's exceptional items in FY10 and FY09 were as high as Rs 416 crore (Rs 4.16 billion) and Rs 7,992 crore (Rs 79.92 billion), respectively.

After adjusting for these exceptional items, losses after tax in FY09 were Rs 184.8 crore (Rs 1.84 billion), while it made a profit after tax of Rs 292.3 crore (Rs 2.92 billion) in FY10.

To draw a comparison with the last accounting period, the then Raju-controlled company had reported revenues of Rs 8,473.5 crore (Rs 84.73 billion) with a net profit of Rs 1,687.9 crore (Rs 16.87 billion) in FY08.

The Mahindra Satyam management said the financial irregularities committed over last several years had a total impact of Rs 6,800 crore (Rs 68 billion) on the profit & loss account, which impacted the balance sheet by Rs 6,900 crore (Rs 69 billion), including unrecorded bank loans and debts.

"The last 16 months have been the most bruising, the most challenging in my career spanning over four decades," said Vineet Nayyar, chairman of Mahindra Satyam. In the intervening period, the company had shrunk from 45,000 people serving over 500 clients to a company of 27,000 people with 350 clients. This is despite the fact that the company added 42 new clients in the last one year.

At the end of FY10, the company had cash and cash equivalent of Rs 2,176.8 crore (Rs 21.76 billion), which mostly came from the Rs 2,900 crore (Rs 29 billion)that the new management had infused into the company after the acquisition on April 13, 2009.

Around Rs 700 crore (Rs 7 billion) of that was used on extraordinary items, removal of debt, readjustment of real estate and expenses incurred towards restating the account.

The loan balance as of March 31, 2010 was Rs 422 crore (Rs 4.22 billion). The company said owing to the magnitude of the financial irregularities, it employed over 100 forensic investigators to focus on the accounts from April 1, 2002 to September 30, 2008.

"Mahindra Satyam was literally crawling with investigating agencies and we ourselves employed about 100 forensic investigators who handled about 27,000 file cabinets full of box files, which is around 30 terabytes of data. They were responsible for processing over two millions emails, 300 computer hard drives and electronic data images, mostly pertaining to bank confirmations, bank recollections and over 200 bank accounts," said Nayyar.

Other than finding financial irregularities to the tune of Rs 6,763.1 crore (Rs 67.63 billion) during this period, the investigating agencies found fictitious entries of Rs 395.5 crore (Rs 3.95 billion), which included bank borrowing of Rs 139.2 crore (Rs 1.39 billion).

The forensic investigation also identified fictitious cash & cash equivalent of Rs 996.4 crore (Rs 9.96 billion), debtor balances of Rs 55.7 crore (Rs 557 million) and unrecorded loans of Rs 70 crore (Rs 700 million) aggregating Rs 1,122.1 crore (Rs 11.22 billion), which resulted in a net opening balance difference of Rs 1,122.1 crore as of April 2002.

"With this announcement, we have fulfilled an important commitment and kept to our promise of transparency and agility. It also marks the beginning of a more significant journey of growth in the future," Nayyar added.