The Hindu Business Line : Volume-driven growth

Satyam Computer Services has delivered a reasonable set of numbers for the December quarter. Revenues rose 8.06 per cent over the previous quarter to Rs 2195.6 crore, on a sequential basis. The operating profits and net profits grew 17 and 6 per cent respectively to Rs 441.2 crore and Rs 433.6 crore. The thrust for the quarter appears to have been on volume-driven growth. An unchanged service mix in terms of volume and high margin services is in keeping with its other top-tier peers. The positive takeaways from the numbers are the increasing trend in the offshore component and strength in billing rates. The increasing offshore component in revenues may drive down costs. Billing rates have risen by 2.3 per cent, which may be a testimony to improving customer relationships. The number of $10 million-plus deals has also increased from 40 to 49 this quarter.

A couple of points that may be viewed with concern in the current context are the slight decline in BFSI contribution to revenues and an increase in the contribution from the US geography. While the latter may not be a negative, the fear of lowered realisations due to rupee appreciation may come into play. The company has also stated that there is no indication on companies reducing their IT budgets in most of the cases (85 per cent).

One of Satyam’s key strengths among top-tier companies is its strong presence in the Enterprise Business Solutions segment. Oracle, for whom Satyam is a vendor, has recently unveiled strong numbers for 2007, which is a positive signal that this segment is on track. This apart, recent deal wins such as those with FIFA and Nestle indicate that Satyam is building a client base which would require periodic upgrades that would provide sustained revenue streams with lower cyclicality. The announcement of delivery from newer platforms such as SaaS (software as a service) also holds promise. Infosys already has a deal-win in this area and Satyam may be well placed to catch up.

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