The Hindu Business Line : Satyam delivers on profit growth; outlook clouded

BL Research Bureau Satyam Computer has delivered a higher profit growth in the June quarter (17.3 per cent sequential growth) than its top tier peers, aided by volume growth, low growth in staff costs and a depreciating rupee.

But marginally lower billing rates and lack of clarity on IT spends of banking clients in the US remain points of concern.

Revenues have grown sequentially by 8.5 percent to Rs 2620.8 crore, while profits increased by 17.3 percent to Rs 547.7 crore.

Flat operating metrics

Satyam’s volume growth has been 3 per cent this quarter, higher than Infosys and TCS. But in terms of service-mix and vertical-mix, there have been no material changes. There has also been very marginal tweaking done on parameters such as utilisation and increasing the offshore component of revenues . But concerns in the form of a 0.23 per cent decline in billing rates sequentially clouds the outlook on pricing of deals, as with other IT majors. As with Infosys, application development and maintenance services and consulting and enterprise business solutions haven’t improved contributions. Attrition has declined over the quarter for Satyam, a parameter in which it has done better than peers.

Concerns and outlook

With US banking majors, some of whom are Satyam’ clients, continuing to report huge sub-prime and related bad debts and losses, the outlook on this front is a matter of concern. But compared to TCS and Infosys, BFSI clientele (21.4 percent of revenues) contributes less to overall revenues.

Earnings guidance

The earnings guidance in rupee terms has been increased to Rs 31.83 to Rs 32.3 per share for the year. This is mainly because the exchange rate has been assumed to be Rs 42.88 to the dollar, which may not be a certainty. But the dollar guidance has remained the same, indicating that the management is still cautious on the macro-environment and on enhanced IT spends from clients.

The outcome on the litigation with Upaid is also awaited. Staff costs would go up in the next quarter, with impending wage hikes and may strain margins.

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