Satyam - An Insight Story

SATYAM An Insight Story

CORPORATE HISTORY

• On 24th June, 1987 company was incorporated as a Private Limited Co. for providing Software Development and Consultancy Services to large corporations. • The company was promoted by 2 brothers B Rama Raju and B Ramalinga Raju. • On 26th August, 1991 it was converted into a Public Limited Company and went for PUBLIC ISSUE in 1992. • Satyam headquater is situated in Hyderabad.

• During the year 1996 company promoted 4 subsidiaries: – – – –

Satyam Renaissance Consulting Ltd. Satyam Enterprise Solutions Pvt. Ltd. Satyam Infoway Pvt. Ltd (e-commerce) and Satyam Spark Solutions Pvt. Ltd. (software's)

• In the year 1998, Satyam Infoway, has received the Technical Engineering Centre (TEC) approval from the Department of Telecommunications (DoT) for commercializing its operations. • Satyam Computer Services Ltd. has entered into an agreement with the National Securities Depository Ltd. (NSDL) for providing its shareholders with the facility of trading in the dematerialized form of shares.

• In the year 1999, Satyam Infoway Ltd, became the second largest Internet services provider in India based on the number of customers.

• Satyam Infoway (sify) is the first Indian Internet company listed on NASDAQ.

• In the year 2000, Satyam Computer Services Ltd., has been selected by the Switzerland-based World Economic Forum and World Link magazine as one of the 100 most remarkable and rapidly growing IT company. • The Company launched its shopping channel as www.sifymall.com.

• In 2001, The American depositary shares (ADS) of Satyam Computer Services on May 16 was listed at .16 $ on the New York Stock Exchange (NYSE) at a premium of 14.9 per cent to the offer price.

• Satyam became the world’s first ISO-9001:2000 certified IT company.

• During 2002, Satyam Computer Launched operations in China.

• Satyam Computer Services signed an agreement with Saint-Gobain Abrasives, USA based corporation to provide IT services.

• Year 2003 Bags Account Performance Award from Strategic Account Management Association (SAMA) during its annual conference in Orlando, Florida. • Satyam Computer Services honoured with prestigious IBM Lotus award. • Satyam started providing IT services to the world Bank.

• In 2004, IT major Satyam Computer Services Ltd has launched a unique platform called 'Virtue' which will provide two-way communication between the company and the selected candidates for employment.

• Year 2005, Satyam ranked 3rd in Corporate Governance Survey by Global Institutional Investors. • Satyam Computer launched business solutions laboratory, FUTURUS. • Satyam foray into China.

• Satyam Computer Services Ltd in 2006 received global certification in the ISO 9001 (quality management). • ISO 2000 (information technology service management for Infrastructure Management Services & Network & Systems). • ISO 27001 (Information Security Management) standards. • Satyam forays into Egypt.

• During the year 2007, SCSL implemented an organization-wide, virtual learning environment called Satyam Learning World. • Satyam Computer had forged an alliance with USbased JDA Software Group Inc. to provide software services to more than 5500 retailers across US. • Satyam partners in developing Hera FxV-India's first Digital Car launched at CII Conclave.

• In the year 2008, Satyam’s revenue crossed $2 billion. • Satyam wins the Golden Peacock Award for the excellence in corporate governance. • In December’ 2008, Satyam planned to buy 100% stake in Maytas Infra and 51% stake in Maytas property’s.

OVERVIEW OF IT SECTOR • Information Technology is one of the most important industries in the Indian economy. The IT industry of India has registered huge growth in recent years. • India's IT industry grew from 150 million US Dollars in 1990-1991 to a whopping 50 billion US Dollars in 2006-2007. • In the last ten years the Information Technology industry in India has grown at an average annual rate of 30%.

• Deregulation policies adopted by the Government of India have led to substantial domestic investment and inflow of foreign capital to this industry. • In 1970, high import duties had forced IBM to leave India. However, after the early nineties, many multi national IT companies, including IBM, have set up their operations in India. • During the ten year period 1992-2002, the Indian software industry grew at double the rate as the US software industry.

• India's IT industry caters to both domestic and export markets. • Exports contribute around 75% of the total revenue of the IT industry in India. • The IT industry can be broadly divided into four segments · IT services · Software's · ITES-BPO · Hardware

Some of the major reasons for the significant growth of the IT industry of India are: • Abundant availability of skilled manpower • Reduced telecommunication and internet costs • Reduced import duties on software and hardware products • Cost advantages • Encouraging government policies

Some of the major companies in the IT industry of India are • • • • • • • • • •

Tata Consultancy Services (TCS) Cognizant Technology Solutions (CTS) Infosys Wipro IBM HP HCL Patni Satyam NIIT

The growth and prosperity of India's IT industry depends on some crucial factors. These factors are as follows: • India is home to a large number of IT professionals, who have the necessary skill and expertise to meet the demands and expectations of the global IT industry. • The cost of skilled Indian workforce is reasonably low compared to the developed nations. • Has a huge pool of English-speaking IT professionals. That is why the English-speaking countries like the US and the UK depend on the Indian IT industry for outsourcing their business processes.

ABOUT SATYAM • Satyam Computer Services Ltd is one of the leading global consulting and IT services company that offers end-to-end IT solutions for a range of key verticals and horizontals. • Satyam Computers has domain expertise in verticals such as Automotive, Banking & Financial Service, Insurance & Healthcare, Manufacturing, Telecom, Infrastructure, Media, Entertainment, and Semiconductors.

• Satyam has nearly 53,000 employees. • Satyam Computers' network is spread over 65 countries across 6 continents. • Satyam serves over 690 global companies including over 185 Fortune 500 corporations.

• Satyam Computers was founded in June 1987 as a private limited company by Ramalinga Raju along with one of his brothers, R Rama Raju. • In June 1991, Satyam Computers got its first Fortune 500 Client and was recognized as a Public Limited Company. • Satyam went public in May 1992 and its issue was oversubscribed by 17 times.

ABOUT MAYTAS

• Maytas Infra Limited is one of the leading Infrastructure Development, Construction and Project Management Companies in India. • Maytas Infra is an ISO-9001:2000 certified company. • SCSL are the Promoters for Maytas Infra and Maytas properties

• Maytas Infra in indulged in sectors such as Roads/Expressways/Highways, Buildings and Industrial Structures, Irrigation Canals and Dams, Thermal and Hydel Power Projects. • The Company executes complex and challenging projects with highest international standards.

SERVICES PROVIDED BY MAYTAS

– Development of Infrastructure Projects – Construction of Infrastructure Projects – Project Management

STRATEGIES OF SATYAM (SATYAM’S PERFORMANCE) Satyam has acquired many firms and entered into strategic alliances with various major IT company’s to create more value for their customers, both internal and external.

MAJOR ACQUISITIONS • S&V, a leading European Supply Chain Management (SCM) Consulting Firm. • Caterpillar’s Market Research and Customer Analytics operations. • Bridge Strategy Group LLC, a strategy and general management consulting firm. • NITOR, a niche consulting firm providing Infrastructure Management Services. • Citisoft, a highly specialized European business and systems consulting firm. • Knowledge Dynamics, a high-end consulting solutions provider in Business Intelligence .

MAJOR ALLIANCES • JDA Software Group is a leading provider of end-to-end demand and supply chain solutions and Retail solutions • Oracle Corporation offers its database, tools and application products, along with related consulting, education & support services. • SAP is the recognized leader in providing collaborative e-business solutions for all types of industries and for every major market. • Goldratt Consulting Goldratt Consulting is dedicated to making Theory of Constraints the ideal way of managing organizations. • UCS has been a Retail focused software company with over 25 years of experience in Retail.

• In 1993, company has entered into a joint venture agreement with Dun & Bradstreet Corp., U.S.A. for development of softwares. • On January 26th’ 1994 a joint venture company called Dun & Bradstreet Satyam Software (P) Ltd. was incorporated.

• During 2001, Company won the Frost & Sullivan market engineering award for Competitive Strategy in the application service provider category. • Satyam Computer Services tied into a global strategic alliance with SEEC Inc., a Pittsburgh-based leading provider of component and web services solutions for insurance and other industries.

• They also Commenced a Student Administration System (SAS) solution implementation for Singapore- based Universities 21 Global (U21G), a leading online university initiative, offering online higher education to students all over the world. • Satyam Computer Services Ltd on June 04, 2007 has announced that it recently won Computer Associates Vision, Impact, Progress (VIP) Award for an internal implementation and optimization of CA's service desk platform.

• In the year 2005, Satyam Computer joins Microsoft Insurance Initiative.

GOVERNANCE ISSUES • Corporate governance is not just corporate management, it is something much broader to include a fair, efficient & transparent administration to meet certain well-defined objectives. • It is a system of structuring, operating & controlling a company with a view to achieve long-term strategic goals to satisfy shareholders, creditors, employees, customers & suppliers, & complying with the legal & regulatory requirements, apart from meeting environmental & local community needs.

FUNDAMENTAL PRINCIPLES OF CORPORATE GOVERNANCE • TRANSPARENCY: It means

accurate, adequate & timely disclosure of relevant information to the stakeholders. Without transparency, it is impossible to make any progress towards good governance.

• ACCOUNTABILITY: Corporate governance has to be a top-down approach. Chairman, Board of directors & chief executives must fulfill their responsibilities to make corporate governance a reality in Indian industry.

• Honest and Ethical Conduct: Act with utmost good faith and fulfill his or her fiduciary obligations without allowing his or her independence of judgment to be compromised.

• Regulatory Compliances: Comply with any applicable laws, rules, regulations, approvals, press notes, orders and Keep up-to-date, his/her knowledge of compliances required under Applicable Law.

• Conflict of Interest: Avoid “conflict of interest” with the Company. A conflict of interest exists where the interest of a Director or member of the Senior Management conflicts with that of the Company.

• Corporate Opportunities: Not exploit directly or indirectly for his/her personal gain, opportunities that are discovered through the use of the Company’s property.

• Use and Protection of Company’s Assets: Protect the Company’s assets and properties, records and systems, including intellectual property and ensure their efficient use.

• Confidential Information: Maintain the confidentiality of sensitive information of the Company and its business, its subsidiaries or that of any stakeholders, to whom the Company has a duty to maintain confidentiality except when disclosure is authorized or legally mandated.

• Fair Dealing: Deal fairly and honestly with the stakeholders of the Company, including the Company’s shareholders, creditors, lenders, suppliers, customers and employees.

• Disclosure of Interest: Disclose the necessary information to the Company and the Board of Directors at regular intervals in respect of details of related parties and details of any material financial and commercial transactions where a conflict of interest is likely.

• Meetings: Endeavour to attend and actively participate in all the meetings of the Company.

DECEPTION POINT • Satyam Chairman Quits, admits to fraud. “It was like riding a tiger, not knowing how to get off without being eaten”

• Satyam Plunges to all time Low.

• Mr Raju, Quarter after quarter, inflated Satyam’s profits, even as operations expanded and costs grew. • In its books for the third quarter it inflated (non existent) cash and bank balances of Rs. 5040 crore as against Rs. 5361 crore reflected in the books. • An accrued interest of Rs. 376 crore which is non-existent.

• An understated Liability of Rs. 1230 crore on account of funds arranged by Mr. Raju. • An overstated debtors position of Rs. 490 crore (as against Rs. 2651 reflected in the books). • In the same quarter satyam reported a revenue of Rs. 2700 crore and an operating margin of Rs. 649 crore (24% of revenues) as against the actual revenues of Rs. 2112 crore and an actual operating margin of Rs. 61 crore (3% of revenues). • This resulted in artificial cash and bank balances going up by Rs. 588 crore in Q2 alone.

• What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the year. • The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations- thereby significantly increasing the costs.

• Every attempt made to eliminate the gap failed. The ride took a final turn on December 16th, when Mr Raju tried to buy two firms owned by his family, Maytas Properties and Maytas Infra, for $1.6 billion. • Satyam’s board approved the proposal but shareholders revolted. They thought it was a brazen attempt to siphon cash out of Satyam, in which the Raju family held a small stake, into firms the family held more tightly.

• In fact, it was Mr Raju’s last desperate attempt to plug the hole in Satyam’s balance sheet with Maytas’s assets.

• He also admitted that for the last 2 years, a net amount of Rs. 1230 crore was arranged to satyam (not reflected in the books) to keep the operation going by pledging all the promoters shares and raising funds from known sources by giving all kind of assurances.

• As the deal was swiftly aborted. In the aftermath, four non-executive directors quit, hoping to salvage their own credibility, and Mr Raju’s creditors came knocking.

• The last straw was the selling of most of the pledged shares by the lenders on account of margin triggers.

FURTHER ACTIONS • Raju brothers are arrested under sections 420, 406, 120B and 471.

• The Income TAX dept is independently probing the accounting fraud in Satyam with a focus of tax deducted at source and BENAMI Deals.

• As many as 12 lawsuits have been filed against Satyam computer in US courts, charging the Indian IT firm with duping thousands of American investors out of billions of dollars. • The Ministry of Corporate Affairs said that the government has refered the financial bungling by Satyam Computer Services to the Serious Frauds Investigation Office (SFIO).

• PWC had been auditing satyam’s balance sheet since year 2000. • Companies have to keep bank statements for the current and preceding years at registered offices. It is suspected that the files vanished as they would have given away the fraud.`

RESTRUCTURING PROCESS • Liquidating assets and bringing in new investors are some of the measures on cards with the board to rescue Satyam. • As a part of high profile restructuring, DELOITTE and KPMG has been appointed as independent auditors to help restate the company’s financial reports. • The government superseded the board of Satyam and decided to appoint 10 nominee-directors. The new board will take a decision on a new management team.

• DEEPAK PAREKH set to be appointed Chairman (Chairman of HDFC ltd and HDFC bank), KIRAN KARNIK and C ACHUTAN (legal expert). • TARUN DASS (CII Mentor), TN MANOHARAN (former president of ICAI) and SB MAINAK are among other 3 board members appointed by the Government. • The 3 members of BCG has been appointed as a management advisor and is working to revive satyam.

• Satyam board has appointed GOLDMAN SACHS & AVENDUS as its Investment Bankers.

• The Satyam restructuring mandate would be a high-profile and potentially lucrative role for the appointed investment bank, which would be responsible for helping to keep the company afloat and for keeping investors from losing everything

• The board members met key customers and some of the major stake holders articulating the positive development to reassure and restore confidence in Satyam. • SEBI and government of India devise appropriate fair and transparent measures for enabling open bids. • The most important aspect now for satyam is to make arrangements of funds to meet its working capital requirements.

• Companies and government are closely watching Satyam strategies. They feel that satyam should stand of its own first, if not then only other company’s would approach for a takeover/acquisition of satyam. • Other IT majors like HCL is also considering a possibility of the takeover and keeping a watch on satyam moves.

Challenges ahead • Client Acquisition and Retention • Retaining employees • Productivity • Resource and Skill Gaps • Funding

IMPACT On INDIA INC. • Questions have been raised on the balance sheets of other IT Companies and the role of auditors. • Investors loosing faith in major IT firms and other major Corporate due to fraud arisen out of Mr. Raju’s confession. • Due to the satyam turbulence, 70 independent directors of various companies including ZeeNews, TVS Motors, BHEL etc, had quit from satyam and resigned from there respective companies. • SEBI has made mandatory for the promoters of the companies to disclose details of the shares pledged by them.

NEWS UPDATE • In a meeting held in Hyderabad, the Satyam board members are looking forward for a strategic partner to steer the company forward by deciding on the funding arrangements to ensure the scheduled payments.

• The Current share prices of Satyam as on 28th Jan is Rs. 55.60.

• Satyam has started giving PINK slips to its employees could potentially down size its workforce by a whooping 4500 employees.

• Every customer who has outsourced work to Satyam is weighing the risks, reviewing their contracts. After all it is not easy to transfer work to new vendors.

• Larson & Toubro (L&T) has already raised its stake in Satyam from 7.6% to 12%.

• The World Bank has banned Satyam for 8 years and has given a chunk of projects to Tata Consultancy Services through competitive bidding, an indication that the Bank is not specifically targeting Indian IT companies.

WHAT NEXT • What all India needs today is a "critical regulation and greater compliance“. • Though government has introduced a new companies bill, which would allow shareholders to pursue classaction lawsuits, but it will probably lapse when elections are called some time before May. • Even if a new government passes the legislation, India’s cumbersome courts tend to delay justice to the point of denying it.

• But even an assertive board and reputed auditors will struggle to stop managers who are determined to hide their dirty laundry from view.

• About half of the 30 companies in the Sensex, India’s benchmark stockmarket index, are run by business families, most of who trace their roots back to the closed economy of India’s past. • “They don’t always understand the new rules,”. “Until investors stand up and say these practices are unacceptable, what reason do companies have to change?”

CONCLUSION

• Satyam bifurcating the word, we may interpret one who had stolen & transferred your all money in its own kitty. Let this be the lesson for all the investors & the whole economy. • We also wish that the company stands once again whooping investors not with the false promises but in accordance with its name that is TRUTHFULNESS.

Raju Raju sat up on the wall Raju Raju had a great fall Balance sheet died Shareholders cried Raju Raju made a fraud

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