Satyam profits revealed for open offer, shares surge

BANGALORE Tue Jun 9, 2009 9:32pm IST

Employees of Satyam Computer Services Ltd., enter their head office in Hyderabad April 13, 2009.  REUTERS/Krishnendu Halder/Files

Employees of Satyam Computer Services Ltd., enter their head office in Hyderabad April 13, 2009.

Credit: Reuters/Krishnendu Halder/Files

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BANGALORE (Reuters) - The Satyam Computer Services released figures on Tuesday showing it stayed profitable even after being hit by India's biggest corporate scandal, sending its shares and those of its new parent surging.

Satyam, which once ranked as India's No. 4 outsourcing firm, had not reported results beyond the September quarter after founder Ramalinga Raju shocked investors in January by saying profits had been overstated for years, putting in doubt its survival.

The company's reported numbers and client base exceeded most analysts' expectations, with Satyam shares ending the day up the maximum daily limit of 10 percent at 66.85 rupees. The stock is down 61 percent in 2009, while the main market is up 57 percent.

Tech Mahindra, which won an April auction for a controlling stake in Satyam with a bid worth around $580 million, soared as much as 28 percent before ending up 25.5 percent at 744.20 rupees, its best close in nine months.

"While some part of the data is positive, the outlook remains uncertain due to impending liabilities and in the absence of complete audited statements," said Kevin Trindade, a sector analyst at KR Choksey Shares and Securities.

Satyam posted a consolidated net profit of 1.6 billion rupees ($33.5 million) for the December quarter, and profits of 40 million rupees in January and 520 million rupees in February.

The year-ago figures were not available as they are being restated, and Satyam said the financial information was prepared using internal management information systems and had not been audited, reviewed or examined by an independent auditor.

"There can be no assurance that any such information is accurate, and the actual results may be materially higher or lower than projected," Satyam said in a statement.

OPEN OFFER

The financials were disclosed because of an open offer that Tech Mahindra is launching on Friday to buy up to 20 percent of shares in the open market to take its stake to 51 percent. The figures had been disclosed to the final bidders in April.

Analysts said few Satyam shareholders would subscribe to the open offer if the price was not increased from 58 rupees a share.

If it is not fully subscribed, Tech Mahindra has an option of a second preferential issue to raise its stake to 51 percent.

Satyam reported standalone net profit of 1.81 billion rupees on revenue of 22.9 billion rupees in the December quarter. The operating profit margin was 15.9 percent, higher than the 3 percent margin Raju had claimed in his confession letter in January.

Revenues were 6.81 billion rupees in January and 6.76 billion rupees in February.

"People were thinking that there's going to be a significant amount of losses. But that's not the case," said Tarun Sisodia, head of research at Anand Rathi Securities.

Satyam, which was founded in 1987, said it had total bank balances of 3.73 billion rupees as on March 31, against reported cash and bank balances of 53.61 billion last September.

Between the revelation of the fraud on Jan. 7 and March 26, Satyam said 23 clients had terminated or not renewed deals that had contributed $70 million of revenue in the December quarter.

The company, which had 47,948 staff at end-February, had new

business orders from 215 clients, with a total value of $380 million in the period.

Satyam said it would "vigorously" defend itself in U.S. class action lawsuits filed by its shareholders after the massive plunge in the stock price following the disclosure of the fraud.

(Additional reporting by Narayanan Somasundaram & Ami Shah in

Mumbai)

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