Satyam Computer edged up 2.6% to Rs 224.25 on Friday after a witnessing a great deal of volatility over the last few sessions on alternate bouts of buying and selling by institutions.

At the current juncture, the scrip was trading near the day's high of Rs 224.40. The scrip clocked good volumes of 4 million shares on BSE.

Much volatility has characterised the scrip of late following disappointing Q3 results announced last week. In just three sessions following the announcement of Q3 results, the scrip plunged 15.9% from Rs 260.15 on 22 January 2003 to Rs 218.75 on 27 January 2003. On Thursday, the scrip witnessed much intra-day volatility, finishing 0.9% higher at Rs 218.45 after gaining as much as 4.2% to Rs 225.50 earlier.

Funds have been cutting their exposure on the counter following the results disappointment, according to dealers. A host of institutions offloaded the Satyam Computer stock in the last few sessions, as per market sources. Domestic brokerage Birla Sun Life Mutual Fund is one such fund. Foreign brokerage J P Morgan dumped 2 million Satyam shares recently, but that was all absorbed, largely by UTI.

Last week, the Hyderabad-based company announced dismal third quarter (ended 31 December 2002) results, which even fell below its own guidance. The company posted a 2.2% fall in net profit to Rs 116.73 crore (Rs 1.16 billion) from Rs 119.43 crore (Rs 1.19 billion) in the corresponding period of the previous year. Sales jumped by 19.8% to Rs 522.26 crore (Rs 5.22 billion) from Rs 435.77 crore (Rs 4.35 billion).

The 2.2% fall in net profit was far below the projections of a capitalmarket.com poll, which had estimated a net profit of Rs 121.80-129.5 crore (Rs 1.21-1.29 billion). On the other hand, DQ 2002 sales at Rs 522.26 crore (Rs 5.22 billion) met the lower side of analysts' expectations - sales in the range of Rs 521.6- 538.70 crore (Rs 5.21-5.38 billion).

Satyam Computer posted a 5% sequential rise in sales but profit after tax, after extraordinary items, slipped 1% sequentially as margins were under pressure. The performance was well below analysts' expectations as well as its own guidance. The company had projected income from software services to be between Rs 525 crore (Rs 5.25 billion) and Rs 540 crore (Rs 5.4 billion) and operating margin around 32% for DQ 2002. Earning per share for the quarter was expected in the range of Rs 4 and Rs 4.2 i.e. profit after tax between Rs 125.82 crore (Rs 1.25 billion) and Rs 132.11 crore (Rs 1.32 billion).

Satyam Computer also revised downwards its revenue and EPS guidance for the current financial year to Rs 2,010 crore-Rs 2,020 crore (Rs 20.1 billion-20.2 billion) and Rs 14.57–Rs 14.66, respectively. This is the second straight time that Satyam Computer has revised downwards its FY 2002-03 EPS forecast. At the time of announcing Q2 (ended 30 September 2002) results, the company had revised downward its FY 2002-03 EPS guidance to Rs 16.06-16.26, from the earlier forecast of Rs 17.10-Rs 17.50. It had cited a stronger rupee and the resultant fall in other income for the downward revision.

Satyam Computer's manpower strength has gone up by 351 to 9,304 associates as against 8,953 associates as on 30 September 2002. The entire rise has been in the form of technical associates. The company also added 24 (23) new clients during the DQ 2002 quarter including six (five) Fortune 500 customers. It now has 78 (72) Fortune 500 clients. The number of active customers was 272 (266).

The pressure on billing rates and a rising wage bill on a resumption of recruitment has led to the fall in bottom line.

Analysts said the rupee's appreciation is cause for concern, but it will not have major impact if software companies properly use the hedging mechanism by taking forward cover, depending on their revenue stream in the next five to six months. Hedging the foreign exchange (assuming 3-month contracts) could mitigate up to 30% of this impact.

Satyam Computer , a SEI CMM Level 5 company, is a global systems integrator. The company offers information technology expertise in the areas of software development services, consulting, systems integration, ERP solutions, product development, electronic commerce and Internet-based services.

BSE Code: 500374

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