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Satyam faces challenges a year after financial scandal

John Ribeiro | Sept. 30, 2010
Irregularities to the tune of US$1.6 billion were detected

BANGALORE, 29 SEPTEMBER 2010 - Satyam Computer Services' revenue skidded in the Indian fiscal year, even as a new management tried to reassure customers and employees, according to financial results released belatedly by the company.

The company, which was hit by a financial scandal in January last year, reported on Wednesday revenue of 54.8 billion Indian rupees (US$1.22 billion at the exchange rate on the last day of the fiscal year) for the fiscal year ended March 31, 2010, down by 38 percent from revenue in the previous fiscal year.

The company however reduced its losses to 1.25 billion rupees from 81.8 billion rupees a year earlier. A large part of the losses last year are related to the financial irregularities at the company.

"It appears that the company is losing clients despite the new management," said Sudin Apte, principal analyst at Forrester Research.

Satyam has to reassure customers on a number of fronts, including its investments in new technologies, and how it plans to differentiate itself from larger Indian players like Tata Consultancy Services and Infosys Technologies, Apte said. The company will also have to stem attrition, as it appears that it has lost staff in the year to March 31, 2010, he added.

Satyam's staff cost has fallen to 39.8 billion rupees from 60.7 billion rupees a year earlier, suggesting large staff attrition.

The company announced on Wednesday its financial results in accordance with Indian GAAP (Generally Accepted Accounting Principles) for the fiscal years ended March 31, 2009 and March 31, 2010.

The company has decided to delist its American Depositary Receipts (ADRs) from the New York Stock Exchange (NYSE) in October, as it will not be able to comply with the stock exchange's requirement to file its delayed financial results in accordance with U.S. GAAP by an Oct. 15 deadline, the company said last week.

Satyam was plunged into a crisis in January last year after its founder, B. Ramalinga Raju, said that the company's account had been cooked up for several years.

A board appointed by the Indian government soon after had ordered the accounts of the company to be restated.

The accounts released on Wednesday disclose the extent of the fraud at Satyam. The company said a lot of information on its finances is still not available, or may have been destroyed.

A forensic examination from April 1, 2002 to Sept. 30, 2008 pointed out to two types of financial irregularities: unrecorded transactions, and fictitious entries entered in the accounting records.

The false entries for 62.3 billion rupees were largely fictitious recognition of revenue and interest, which resulted in the creation of false cash and bank balances and receivables, Satyam said.

 

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