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Raju's claim of 3% Sept quarter margin finds few takers

B G Shirsat in Mumbai | January 12, 2009 14:06 IST

There are very few takers for B Ramalinga Raju's astounding claim that the margin earned by Satyam [Get Quote] in the quarter ended September 2008 was just 3 per cent, and not 24 per cent as reported in the results.

Analysts say Raju's "confession" on mis-reporting of margins over the last several years is far too facile. It is true that Satyam Computer Services, which was till recently known as India's fourth largest software  services firm, had the highest employee cost to sales ratio of around 60 per cent in the last three years compared to 50-53 per cent reported by Infosys [Get Quote] and TCS [Get Quote].

But that hardly explains why Satyam's actual margin will be a mere one-tenth of what enjoyed by the top three IT companies - TCS, Infosys and Wipro [Get Quote]. Even at 24 per cent, Satyam's margin was 8-10 per cent lower than them, but one-tenth is just impossible - a sound reason why analysts want regulatory agencies to verify Raju's claims in his so-called tell-all letter.

The 3 per cent margin would place Satyam Computer far below mid-cap companies such as Tech Mahindra [Get Quote], Mphasis, Patni Computer, Oracle Financial and Rolta India [Get Quote]. This is again impossible as Satyam has a much larger clientele and would certainly bill its clients at much higher rates compared to these smaller firms.

All these companies, which reported over 20 per cent operating margins in the second quarter ended September 2008, had a combined market capitalisation of Rs 14,400 crore (Rs 144 billion) on a quarterly net sales of Rs 3,700 crore (Rs 37 billion). Satyam had a market cap of Rs 15,262 crore (Rs 152.62 billion) on a reported quarterly net sales of Rs 2,800 crore (Rs 28 billion) before the Maytas episode came to light.

If Raju's claim of 3 per cent margin was to be taken at face value, Satyam's is below even small-cap companies such as Tele Data Informatics, Cambridge Solutions [Get Quote] and Prithvi Information Solutions [Get Quote], which had operating margins of around 4-6 per cent during the second quarter.

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