satyam - an insight story

8/14/2019 SatYam - an insight story

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SATYAMSATYAMAn Insight StoryAn Insight Story


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CORPORATE HISTORYCORPORATE HISTORY


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On 24th June, 1987 company was incorporated as aPrivate Limited Co. for providing Software Developmentand Consultancy Services to large corporations.

The company was promoted by 2 brothers B Rama Rajuand B Ramalinga Raju.

On 26th August, 1991 it was converted into a PublicLimited Company and went for PUBLIC ISSUE in 1992.

Satyam headquater is situated in Hyderabad.


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During the year 1996 company promoted 4subsidiaries:

Satyam Renaissance Consulting Ltd.

Satyam Enterprise Solutions Pvt. Ltd.

Satyam Infoway Pvt. Ltd (e-commerce) andSatyam Spark Solutions Pvt. Ltd.(software's)


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In the year 1998, Satyam Infoway, has received theTechnical Engineering Centre (TEC) approval from the

Department of Telecommunications (DoT) forcommercializing its operations.

Satyam Computer Services Ltd. has entered

into an agreement with the NationalSecurities Depository Ltd. (NSDL) forproviding its shareholders with the facilityof trading in the dematerialized form ofshares.


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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 Internetcompany listed on NASDAQ.


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In the year 2000, Satyam Computer Services Ltd.,

has been selected by the Switzerland-based WorldEconomic Forum and World Link magazine asone of the 100 most remarkable and rapidlygrowing IT company.

The Company launched its shopping channel aswww.sifymall.com.


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In 2001, The American depositary shares (ADS) ofSatyam Computer Services on May 16 was listed at

.16 $ on the New York Stock Exchange (NYSE) at apremium of 14.9 per cent to the offer price.

Satyam became the worlds firstISO-9001:2000 certified IT company.


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During 2002, Satyam Computer

Launched operations in China.

Satyam Computer Services signed anagreement with Saint-Gobain Abrasives,USA based corporation to provide ITservices.


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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.


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In 2004, IT major Satyam ComputerServices Ltd has launched a uniqueplatform called 'Virtue' which willprovide two-way communication between

the company and the selected candidatesfor employment.


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Year 2005, Satyam ranked 3rd in CorporateGovernance Survey by Global Institutional

Investors.

Satyam Computer launched businesssolutions laboratory, FUTURUS.

Satyam foray into China.


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Satyam Computer Services Ltd in 2006 received globalcertification in the ISO 9001 (quality management).

ISO 2000 (information technology service managementfor Infrastructure Management Services & Network &Systems).

ISO 27001 (Information Security Management)standards.

Satyam forays into Egypt.


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During the year 2007, SCSL implemented anorganization-wide, virtual learning environment calledSatyam Learning World.

Satyam Computer had forged an alliance with US-based JDA Software Group Inc. to provide softwareservices to more than 5500 retailers across US.

Satyam partners in developing Hera FxV-India's firstDigital Car launched at CII Conclave.


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In the year 2008, Satyams 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 propertys.


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Information Technology is one of the most importantindustries in the Indian economy. The IT industry ofIndia has registered huge growth in recent years.

India's IT industry grew from 150 million US Dollarsin 1990-1991 to a whopping 50 billion US Dollars in2006-2007.

In the last ten years the Information Technologyindustry in India has grown at an average annual rateof 30%.

OVERVIEW OF

IT SECTOR


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Deregulation policies adopted by the Government of Indiahave led to substantial domestic investment and inflow offoreign capital to this industry.

In 1970, high import duties had forced IBM to leave India.However, after the early nineties, many multi national ITcompanies, including IBM, have set up their operations in

India.

During the ten year period 1992-2002, the Indian softwareindustry grew at double the rate as the US software industry.


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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


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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


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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


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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 demandsand expectations of the global IT industry.

The cost of skilled Indian workforce is reasonably lowcompared to the developed nations.

Has a huge pool of English-speaking IT professionals.That is why the English-speaking countries like the US andthe UK depend on the Indian IT industry for outsourcingtheir business processes.


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ABOUT SATYAMABOUT SATYAM

Satyam Computer Services Ltd is one of the

leading global consulting and IT services companythat offers end-to-end IT solutions for a range ofkey verticals and horizontals.

Satyam Computers has domain expertise inverticals such as Automotive, Banking & FinancialService, Insurance & Healthcare, Manufacturing,Telecom, Infrastructure, Media, Entertainment,

and Semiconductors.


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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.


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Satyam Computers was founded in June 1987 as aprivate limited company by Ramalinga Raju along

with one of his brothers, R Rama Raju.

In June 1991, Satyam Computers got its first Fortune500 Client and was recognized as a Public Limited

Company.

Satyam went public in May 1992 and its issue wasoversubscribed by 17 times.


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ABOUT MAYTASABOUT MAYTAS

Maytas Infra Limited is one of the leadingInfrastructure Development, Construction andProject Management Companies in India.

Maytas Infra is an ISO-9001:2000 certifiedcompany.

SCSL are the Promoters for Maytas Infra and

Maytas properties


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Maytas Infra in indulged in sectors suchas Roads/Expressways/Highways,Buildings and Industrial Structures,Irrigation Canals and Dams, Thermal andHydel Power Projects.

The Company executes complex andchallenging projects with highestinternational standards.


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SERVICES PROVIDED BY MAYTAS

Development of Infrastructure Projects

Construction of Infrastructure Projects

Project Management


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STRATEGIES OF SATYAMSTRATEGIES OF SATYAM

(SATYAMS PERFORMANCE)(SATYAMS PERFORMANCE)

Satyam has acquired many firms

and entered into strategicalliances with various major ITcompanys to create more valuefor their customers, both internal

and external.


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MAJOR ACQUISITIONS

S&V, a leading European Supply ChainManagement (SCM) Consulting Firm.

Caterpillars Market Research andCustomer 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 .
http://www.satyam.com/about/kdynamics.asphttp://www.satyam.com/about/citisoft.asphttp://www.satyam.com/about/nitor.asphttp://www.satyam.com/about/bridge_strategy.asphttp://www.satyam.com/about/mrca.asphttp://www.satyam.com/about/svmc.asp


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MAJOR ALLIANCES

JDA Software Group is a leading provider of

end-to-end demand and supply chain solutionsand Retail solutions

Oracle Corporation offers its database, tools andapplication products, along with relatedconsulting, education & support services.

SAP is the recognized leader in providing

collaborative e-business solutions for all types

of industries and for every major market.

UCS has been a Retail focused softwarecompany with over 25 years of

experience in Retail.

Goldratt Consulting Goldratt Consulting isdedicated to making Theory of Constraints theideal way of managing organizations.


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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 jointventure company called Dun &

Bradstreet Satyam Software (P) Ltd.

was incorporated.


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During 2001, Company won the Frost

& Sullivan market engineering awardfor Competitive Strategy in the

application service provider category.

Satyam Computer Services tied into aglobal strategic alliance with SEEC

Inc., a Pittsburgh-based leading

provider of component and web

services solutions for insurance andother industries.

Th l C d St d t


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They also Commenced a StudentAdministration System (SAS) solutionimplementation for Singapore- basedUniversities 21 Global (U21G), a leading

online university initiative, offering on-line higher education to students all overthe world.

Satyam Computer Services Ltd on June04, 2007 has announced that it recentlywon Computer Associates Vision, Impact,Progress (VIP) Award for an internalimplementation and optimization of CA's

service desk platform.

In the year 2005, SatyamComputer joins MicrosoftInsurance Initiative.

GOVERNANCE ISSUES


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GOVERNANCE ISSUES

Corporate governance is not justcorporate management, it is somethingmuch broader to include a fair,efficient & transparent administrationto 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.


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TRANSPARENCY:TRANSPARENCY: It meansaccurate, adequate & timely disclosureof relevant information to thestakeholders. Without transparency, it

is impossible to make any progresstowards good governance.

CORPORATECORPORATE

GOVERNANCEGOVERNANCE

ACCOUNTABILITY:ACCOUNTABILITY: Corporate

governance has to be a top-downapproach. Chairman, Board ofdirectors & chief executives must fulfilltheir responsibilities to make corporategovernance a reality in Indian

industry.


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Honest and Ethical Conduct:Honest and Ethical Conduct: Act with utmostgood faith and fulfill his or her fiduciary

obligations without allowing his or her

independence of judgment to be compromised.

Regulatory Compliances:Regulatory Compliances: Comply with anyapplicable laws, rules, regulations, approvals,

press notes, orders and Keep up-to-date, his/herknowledge of compliances required under

Applicable Law.

Conflict of Interest:Conflict of Interest: Avoid conflict of interestwith 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.


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Corporate Opportunities:Corporate Opportunities: Not exploit directlyor indirectly for his/her personal gain,

opportunities that are discovered through the

use of the Companys property.

Use and Protection of Companys Assets:Use and Protection of Companys Assets:Protect the Companys assets and properties,

records and systems, including intellectualproperty and ensure their efficient use.

Confidential Information:Confidential Information: Maintain the

confidentiality of sensitive information of theCompany 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.

i

i


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Fair Dealing:Fair Dealing: Deal fairly and honestly with thestakeholders of the Company, including the

Companys shareholders, creditors, lenders,

suppliers, customers and employees.

Disclosure of Interest:Disclosure of Interest: Disclose the necessaryinformation to the Company and the Board of

Directors at regular intervals in respect ofdetails of related parties and details of any

material financial and commercial transactions

where a conflict of interest is likely.

Meetings:Meetings: Endeavour to attend and activelyparticipate in all the meetings of the Company.


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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.


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Mr Raju, Quarter after quarter, inflatedSatyams profits, even as operationsexpanded 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.


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An understated Liability of Rs. 1230 crore onaccount of funds arranged by Mr. Raju.

An overstated debtors position of Rs. 490 crore (asagainst Rs. 2651 reflected in the books).

In the same quarter satyam reported a revenue ofRs. 2700 crore and an operating margin of Rs. 649

crore (24% of revenues) as against the actualrevenues of Rs. 2112 crore and an actual operatingmargin of Rs. 61 crore (3% of revenues).

This resulted in artificial cash and bank balancesgoing up by Rs. 588 crore in Q2 alone.


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What started as a marginal gap betweenactual operating profit and the one reflectedin the books of accounts continued to grow

over the year.

The differential in the real profits and the

one reflected in the books was furtheraccentuated by the fact that the companyhad to carry additional resources and assetsto justify higher level of operations- therebysignificantly increasing the costs.


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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.

Satyams board approved the proposal but

shareholders revolted. They thought it was abrazen attempt to siphon cash out of Satyam, inwhich the Raju family held a small stake, intofirms the family held more tightly.


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In fact, it was Mr Rajus last desperate attemptto plug the hole in Satyams balance sheet with

Maytass assets.

He also admitted that for the last 2 years, a net

amount of Rs. 1230 crore was arranged tosatyam (not reflected in the books) to keep theoperation going by pledging all the promotersshares and raising funds from known sourcesby giving all kind of assurances.


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The last straw was the selling of most of thepledged shares by the lenders on account of

margin triggers.

As the deal was swiftly aborted. In theaftermath, four non-executive

directors quit, hoping to salvage theirown credibility, and Mr Rajuscreditors came knocking.


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Raju brothers are arrested under sections

420, 406, 120B and 471.

The Income TAX dept is independently

probing the accounting fraud in Satyamwith a focus of tax deducted at source andBENAMI Deals.

FURTHER ACTIONSFURTHER ACTIONS


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As many as 12 lawsuits have been filed against

Satyam computer in US courts, charging the

Indian IT firm with duping thousands ofAmerican 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).


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PWC had been auditing satyams balance

sheet since year 2000.

Companies have to keep bank statements forthe current and preceding years at registered

offices. It is suspected that the files vanishedas they would have given away the fraud.`


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RESTRUCTURING

PROCESS

Liquidating assets and bringing in new investors aresome 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 independentauditors to help restate the companys financialreports.

The government superseded the board of Satyamand decided to appoint 10 nominee-directors.The new board will take a decision on a newmanagement team.

DEEPAK PAREKH set to be appointed


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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 appointedas a management advisor and is working torevive satyam.


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Satyam board has appointedGOLDMAN SACHS & AVENDUS as its

Investment Bankers.

The Satyam restructuring mandatewould be a high-profile and potentiallylucrative role for the appointedinvestment bank, which would beresponsible for helping to keep the

company afloat and for keepinginvestors from losing everything

Th b d b k


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The board members met key customersand some of the major stake holdersarticulating the positive development to

reassure and restore confidence inSatyam.

SEBI and government of India devise

appropriate fair and transparent measures forenabling open bids.

The most important aspect now for satyam is tomake arrangements of funds to meet itsworking capital requirements.

Companies and government are closely


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Companies and government are closelywatching Satyam strategies. They feel thatsatyam should stand of its own first, if not

then only other companys wouldapproach for a takeover/acquisition ofsatyam.

Other IT majors like HCL is also considering apossibility of the takeover and keeping a watch on

satyam moves.


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Challenges aheadChallenges ahead

Client Acquisition and

Retention Retaining employees

Productivity

Resource and Skill Gaps

Funding


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IMPACT On INDIA INC.IMPACT On INDIA INC.

Questions have been raised on the balancesheets of other IT Companies and the role ofauditors.

Investors loosing faith in major IT firms andother major Corporate due to fraud arisen

out of Mr. Rajus confession.

Due to the satyam turbulence, 70 independentdirectors of various companies including ZeeNews,TVS Motors, BHEL etc, had quit from satyam andresigned from there respective companies.

SEBI has made mandatory for the promoters ofthe companies to disclose details of the shares

pledged by them.


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NEWS UPDATENEWS UPDATE

In a meeting held in Hyderabad, the Satyamboard members are looking forward for astrategic partner to steer the company forwardby deciding on the funding arrangements to

ensure the scheduled payments.

The Current share prices ofSatyam as on 28th Jan is Rs. 55.60.


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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 isnot easy to transfer work to new

vendors.


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Larson & Toubro (L&T) has

already raised its stake in Satyamfrom 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, anindication that the Bank is not

specifically targeting Indian IT

companies.


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WHAT NEXTWHAT NEXT

What all India needs today is a"critical regulation and greater compliance."critical regulation and greater compliance.

Though government has introduced a new companies

bill, which would allow shareholders to pursue class-

action lawsuits, but it will probably lapse when

elections are called some time before May.

Even if a new government passes the legislation,

Indias cumbersome courts tend to delay justice to the

point of denying it.


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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, Indiasbenchmark stockmarket index, are run by businessfamilies, most of who trace their roots back to theclosed economy of Indias past.

They dont always understand the new rules,. UntilThey dont always understand the new rules,. Untilinvestors stand up and say these practices areinvestors stand up and say these practices areunacceptable, what reason do companies have to change?unacceptable, what reason do companies have to change?


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CONCLUSIONCONCLUSION

Satyam bifurcating the word, we may interpret onewho hadstolen & transferred your all moneystolen & 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 againwhooping investors not with the false promises but in

accordance with its name that is TRUTHFULNESS.

R j R j h ll


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For any further queries,

Feel free to ask questions.

Raju Raju sat up on the wall

Raju Raju had a great fall

Balance sheet died

Shareholders criedRaju Raju made a fraud

satyam - an insight story

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