Satyam Analysis...

CONTENTS
MANAGEMENT INTRODUCTION HOW ITS HAPPENED WHAT WENT WRONG? IMPACT ON INDIAN IT INDUSTRY INDIAS STEP TO SAVE SATYAM WHO WILL ACQUIRE?

MANAGEMENT

FOUNDER CEO

: :

Mr. Raju Ramalinga Mr. A. S. Murthy

INTRODUCTION
Satyam was established in 1987. 4th fastest growing IT company in India. 9 % market share 40,000 employees Revenue $2.1 billion It is the first company of India listed in three International Exchanges i.e. NYSE, DOW and EURONEXT

HOW ITS HAPPENED

Maytas Acquisition. Investors Aborted. Board Members Resigned. On 7th Jan., 09, Chairman resigned after

Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga Raju. The company offers information technology (IT) services spanning various sectors, and is listed on NSE, BSE, the New York Stock Exchange and Euronext.

Few milestones:
1987 Incorporated as private limited company in 1987 1991 Recognized as a public limited company; debuts on the Bombay Stock Exchange (BSE) IPO oversubscribed by 17 times 1993 Satyam signs joint venture with Dun & Bradstreet for IT Services

Joint venture with GE announced

1999 Satyam Infoway (Sify) becomes the first Indian Internet company listed on NASDAQ
Satyam forms joint venture with TRW Inc. Presence established in 30 countries 2007 Becomes the Official IT Services Provider for the FIFA World Cups, 2010 (South Africa) and 2014 (Brazil) Announces acquisition of UK-based Nitor Global Solutions Limited

Becomes the first Asian company to feature in the Training Magazines list of Top 125 companies for learning

Satyam Scandal.

Cooking books of accounts

Ramalinga Raju, chairman

None of the board members, past or present, had any knowledge of the situation in which the company is placed.
He INFLATED (non existent) cash and bank balance of Rs 5,040 crore(as against Rs 5,361 crore) reflected in the books. AN accrued interest of Rs 376 crore is non-existent. He has understated liability to the tune of Rs1,230 crore in accounts of funds arranged by me.

He hasover-stated debtors position of Rs 490 crore (as against Rs 2,651 crore reflected in the books.)
FOR sept 2008, we reported Rs2,700 crore revenue and operating margin of Rs 649 crore against actual revenue of Rs2,112 crore and margin of Rs 61 crore.

Vadalamani Srinivas, CFO

I was asked specifically to not look into bank statement
AUDITOR never pointed out any deficiencies during their discussions. Fixed deposits were unreal and fictitious which were managed with an understanding between the audit section and management.
BANK deposit were handled directly by Raju and the CFO was specially asked for not to look into it RAJU and his brother used to take decisions and tell us to do as instructed. THE CFO admitted that the account were manipulated for about seven years. PRIOR to quarterly board meetings, Ramakrishna, VP,finance,would prepare the balance sheet. I do not pay much attention to the details of that balance sheet.

Scenario I Forgery inc

The scam team forged invoices to show collection of revenue abroad, forged bank statement to show inflow of money, showed transfer of money to fixed deposits (FDs) through forged FD receipts and reflected all this in the final accounts. The assets and liabilities are altered Q2Q to reflect rising income and rig share price.
This would require matching of revenue With staff strength and salary cost. Would also require forging of TDS certificates for income from FDs.

CAVEAT

POSSIBILITY

High, as there is logic and objective.

Scenario II True Lies

Satyam did make money on export. Raju raised invoices for export abroad; money did come through the banking channels and was transferred to long term FDs and reflected in the books. Once the FDs were recorded in the books the deposits were dissolved and money transferred to multiple accounts. The books continued to reflect the FDs as you dont need to surrender certificate anymore. Siphoned money was use to acquire land, property, pay for political patronage for Maytas Infra and Maytas properties.

This again require forging of TDS certificates for accrued interest and connivance of auditors.

CAVEAT

POSSIBILITY Very high

Scenario III Hawala Inc

Raju receives political slush money abroad, brings it as invoiced billings, shows it in his book and transfers it to FDs to be dissolved latter.The money transferred to multiple accounts is siphoned to repatriate politicians money and for funding the activities of Maytas. Have to show staff strength to match revenues or ramp up operating margins. Besides co-opting auditors and forging TDS certificates. whispers of pressure to pay politicians and patronage.

CAVEAT

POSSIBILITY Very very high, is in sync with

WHAT WENT WRONG?

Inflated figures for cash and bank balances of INR 5,040 cr. (as against INR 5,361 crore reflected in the books). Operating Profit were artificially boosted from the actual 61 cr. to 649 cr. Satyam also showed an interest earning of Rs. 376 cr. that was fictitious.

IMPACT ON INDIAN IT INDUSTRY

It is surely going to be more difficult for other Indian IT service players to win business. Undoubtedly, this is going to hurt the prospects of foreign money flowing into India. Global perception about indian companies. Indian stock market slipped over 7% on 7th Jan., 09.

Balance sheet of Satyam computer ltd.

SOURCES OF FUNDS 1. Shareholders funds a. Share capital (share application money , pending) b. Allotment c. Reserves and surplus 2. Loan Funds a. secured loans b. unsecured loans AS ON 30.09.08 ADJUSTED BALANCE SHEET
ADJUSTMENT S

134.70 2.76 8392.23

134.70 2.76 (-)415.47

30.49 234.80 ______ 8794.98 _______

30.49 1464.80 _______ 1217.28 _______ 1230.00 _______ 1230.00 ________

____________________

APPLICATION OF FUNDS 1. 2. 3. 4. Fixed assests Investments Tax Current assests a. sundry debtors b. cash c. accrued interest d. Loans

AS ON 30.09.08 1381.10 618.64 118.75 2651.36 5312.62 376.34 502.22 2166.05 6676.49

ADJUSTED BALANCE SHEET 1381.10 618.64 118.75 490.00 272.62 502.22 2166.05 901.21

ADJUSTMENT S

1381.10 618.64 118.75 2161.36 5040 376.34 5775.21 (differenc e) ________ 7577.7

LIABITIES Net current assests

TOTAL APPLICATION OF FUNDS

_______ 8794.98

_________ 1217.28

Where is the money???

Questions to the auditors

1) If the company claims it has cash in its hand that should be enough signal for the auditors to check whether the cash in hand is available or not. 2) Bank balance has been invested properly or notwhere all it has been invested MFs,etc. 3) Whether the internal control mechanisms are in place. 4) Scrutinizes if the company has huge creditors and balance at the same time. 5) Look into why the company is not taking benefits and negotiating the price.

cont

6) Are the profit margin abnormal compare to industry norms?

7) Check if there has been a quantum jump in wealth. 8) Carry out an overall ratio analysis of the figures in the organization, previous year, similar industry. 9) Physical verification of assets owned by the company.

New board of director formation by company low board and Ministry of company affaires
Deepak S. Parekh Executive Chairman HDFC group Kiran Karnik president of Nasscom C. Achuthan former presiding officer of the Securities Appellate Tribunal Tarun Das Former president CII T.N. Manoharan S.B. Mainak

Bidders for Acquisition

Spice group Tech Mahindra

Hinduja group
L&T GE

Finally Satyam acquired by tech mahindra.