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Satyam defies US slowdown with 164% jump in net

NetScribes/Abhijit Basu

When Satyam Computer announced its fourth-quarter results on Tuesday evening, it finally ended a suspense that had gripped the markets for too long. A longer client list and a healthier bottomline clearly indicated that the Indian software giant had defied the US slowdown in style.

For the fourth quarter ended March 31, 2001, Satyam posted a 164 per cent rise in net profit to Rs 1.11 billion and an 85.5 per cent growth in total income to Rs. 3.84 billion -- way ahead of analysts' expectations of a 102 per cent rise in bottomline to Rs 838.62 million on a 72 per cent rise in sales of Rs 3.53 billion.

The software major turned in these "better than expected" results on the back of improved margins. Net profit margin rose to 29 per cent from 20 per cent in Q4 2000 although the operating margin remained flat at 37 per cent.

Satyam bagged a total of 110 new customers in FY2001, of which 32 were added in the last quarter alone. "The new client numbers are impressive. With over 12 clients worth billings above $5 million annually and 44 clients worth annual billings of $1 million, the near future is certainly rosy for the company," said Manish Agrawal, software analyst at Pranav Securities.

The top 10 customers accounted for 49 per cent of the company's revenues, compared to 56 per cent in the previous corresponding period, thus increasing the share of business from other clients and stretching the company's client list.

"Overall, the results are positive. The flat operating margin could be a bit worrying, but the management is confident that the next few quarters will be better. The net margin is higher on account of lower provisions for tax this year," said a software analyst at Span Capital Services.

"Maintaining a 37 per cent margin is impressive. The fear is that the slowdown might hit margins in a couple of quarters and that is something that the company needs to look out for," said Agrawal.

While the US slowdown has skipped Satyam this quarter, the bad news is that it just might catch up with it in the next six months.

"The company expects a 12-15 per cent growth quarter-on-quarter for the first quarter of 2001-02. However, they have no projections for Q2 2002 and that is a disturbing fact. The company just might be impacted by the slowdown in Q2 2002," said the Span Capital analyst.

However, Agrawal pointed out that the increase in the number of premium clients could help combat the slowdown. "The company might be impacted in the June quarter. But the new clients might help it ward off the slowdown ghost to some extent," he said.

The offshore business constituted 59 per cent of the Q4 revenues, a marginal increase from 57 per cent in the previous quarter.

While revenues from Internet and e-commerce services fell to 23 per cent from 30.73 per cent in the previous quarter, the traditional maintenance business rose to 23 per cent from the December 2000 quarter.

North America continues to be the biggest contributor to revenues at 75 per cent, while Europe contributed 7 per cent, Japan 4 per cent and other areas accounted for the remaining 14 per cent.

On Wednesday morning, the Satyam scrip was trading at Rs 229.25 on the Bombay Stock Exchange, down from its previous close of Rs 233.90. At the current market price, the stock is trading at a P/E multiple of 21 times its FY01 earnings.

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