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Satyam's margins improve on higher billing rates

NetScribes/Ganesh Ramamoorthy

A rise in offshore billing rates coupled with a growing number of offshore clients saw Satyam Computer Services beat market expectations with a 142 per cent growth in net profit and a 87 per cent growth in total income for the December quarter. Analysts had forecast a bottomline growth of 100-110 per cent and a topline growth of 66-70 per cent over the year-ago quarter.

Satyam's net profit grew from Rs 361 million to Rs 875.09 million. Total income grew to Rs 3.33 billion from Rs 1.77 billion during the year-ago period.

"Besides the more-than-expected growth, a major highlight of the result is the marked improvement in operating margins during the quarter," said a senior software analyst at Pranav Securities. Though Satyam was posting 100 per cent growth rates, the cause of concern was the operating margins, which was under pressure for the past four quarters.

However, during this December quarter, Satyam's operating margin grew to 39.3 per cent against 37.1 per cent a year back. Even without considering the non-operating income, the margin has increased to 37.8 per cent from 36.8 per cent.

"The improvement in operating margins has been basically due to an increase in billing rates during the quarter," said a fund manager with Asit C Mehta Brokerage. "This is a welcome sign, especially when there are lots of talks about declining billing rates for Indian software companies."

During the quarter, billing rates rose to $24.5 from $23.5 in the preceding quarter. "Though it is only a marginal increase, it is a good sign considering that billing rates are under pressure globally," said the analyst at Pranav Securities.

"Moreover, even a marginal improvement in offshore billing rates reflects positively on the operating margin," the analyst said. During the quarter, the share of offshore revenues grew to 57.55 per cent from 47.63 per cent a year back, while exports contributed 97.4 per cent (Rs 3.19 billion) of the total revenues in the latest quarter. The company added about 24 new offshore clients during the period.

Internet and e-commerce businesses contributed about 30.73 per cent to the total revenues against 21.28 per cent a year back, and 27.1 per cent in the September quarter. The enterprise resource planning (ERP) business contributed 6.80 per cent against 11.53 per cent a year back and 6 per cent in the September quarter. Dot-com businesses accounted for less than 1 per cent of the total revenues during the quarter.

Other highlights included realised and unrealised gains of Rs 49.3 million due to foreign currency fluctuation, which saw Satyam's non-operating income rise to Rs 52.2 million from Rs 6.6 million in the year-ago quarter.

Satyam also used a part of its cash balance to reduce the debt burden. As a result, interest expenses came down by 23 per cent to Rs 76 million. Depreciation, at Rs 242.3 million, was up 33 per cent for the quarter.

During the December quarter, the total workforce grew to 8,141 from 7,048 in the September quarter, whereas the number of technical professionals rose by 1,068 to 7,427.

Buoyed by the impressive results, Satyam's shares surged 4.2 per cent to Rs 387 from its previous close on a huge volume of 5.7 million shares in early Tuesday trade on the Bombay Stock Exchange.

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