Friday, June 12, 2009

Satyam revenue outlook not great: Chairman

Satyam Computer Services Ltd is under stress and the near-term revenue outlook is not great, its chairman said, as the fraud-hit outsourcing firm announced a plan to send home up to 10,000 staff on reduced pay.

Satyam on Tuesday released financial figures for the first time since Country's biggest corporate fraud was revealed in January, showing it has stayed profitable and sparking a surge in its shares.

But Satyam Chairman Kiran Karnik played down the euphoria, saying it was yet to take off on a sustained growth path.

"One has to understand that despite the way the media and probably the market reacted to this, the fact is the company is under severe stress," Karnik told Reuters in a phone interview, referring to the reaction to the company's financial numbers.

"It is hugely overstaffed, costs are very high, and the revenue picture in the immediate future is not that great."

Satyam, which once ranked as India's No. 4 outsourcer, had not reported results beyond the September quarter after founder Ramalinga Raju shocked investors in January saying profits had been overstated for years, putting in doubt its survival.

The company's reported numbers and client base exceeded most analysts' expectations, with Satyam shares ending the day up the maximum daily limit of 10 percent for the third consecutive day on Thursday.

Karnik said the company had to take cost cutting measures to help it turn around and boost profitability.

"We have to cut costs. We have to make sure the company becomes viable and position it to take off when the market grows," he said.

"In the meantime, there has to be something done and the biggest cost, as you know, is people."

Karnik said Satyam had "slightly upward" of 10,000 excess staff and that the "virtual pool" programme would help the firm in saving costs on salary and other expenses related to staffs who were not working on any outsourcing projects.

Satyam said on Tuesday it had 47,948 staff at end-February.

Under the "virtual pool" programme, 7,000 to 10,000 of Satyam staff, who have not been working on any outsourcing project for three months, will stay away from the office for up to six months on a reduced salary structure.

They might be called back when and if the firm gets more outsourcing contracts, Karnik said, adding during the time the staff on the "virtual pool" can explore various options including getting themselves trained in new skills and looking for jobs.

In April, outsourcer Tech Mahindra won an auction for a controlling stake in Satyam, with a bid that could top $580 million depending on the outcome of an open offer that is being launched on Friday.

A sharp surge in the shares Satyam, however, means Tech Mahindra will likely need a second preferential issue, as part of the auction conditions, to gain a majority stake in the company.

Tech Mahindra chief executive Vineet Nayyar told Reuters that the company had no plans to revise its offer price of Rs 58 a share to buy up to 20 per cent in the open market to take it stake to 51 per cent. Satyam shares now stand at Rs 80.85.

Nayyar said the client attrition at Satyam had stopped and the parent was aggressively looking for new business, but the near-term focus was on cutting costs as part of which some of Satyam's development facilities in India would be closed.

"Things are looking up but I would say, I am always a bit conservative, we have yet a long way to go," he said. "There are large number of expenses we have to reduce to reach a level of profitability which is that of the industry."

Ahead of the announcement, shares in Tech Mahindra closed down 1.4 percent at 773.90 rupees in a slightly weaker main Mumbai market.

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