Will Satyam recover....

Friday, January 30, 2009

Its recession everywhere and there are losses, job cuts, close down at most of the developed countries and most of the CEO aknowledge it is the most turbulent times in their life.

In spite of this every one wish is that Satyam as a company recovers as company, however there are challenges.

i) There is no point any financial investor to buy shares from the market, as these cash is highly unlikely to go into the company. Hence the option is to increase the equity of satyam and the inverstor should invest in equity of Satyam so that it goes as "Cash" in the system.

ii) As of now, there is no clear indication about the bench strength in Satyam. This is again going to be challenge as already certain Satyam customer indicated terminating their contract. In all IT companies, I believe there was too much of optimism in 'recruitment' in 2005 through 2008. Hence, finding work for all the resource and/or clean up is going to be a challenge.

iii) What even more suprising is that all fortune 500 companies are particular on pricing and most of them are into a 'multi vendor' concept and they do not want dependency on a single vendor and look out for cheap resource unless its mission critical. There is lot of negotiation before a contract is finalized. Its going to be great acheivement for any IT company to show growth in range of 20 to 30% Q on Q basis.

Its going to be interesting to look how IT services company having employee base of 40,000+ come out successfully from 2009 onwards....

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Account Fudging...........

Thursday, January 22, 2009

Why Account fudging is difficult in a Manufacturing & Trading set up?.
Based on the 'Satyam episode', its make one to think why it was much easier to fudge accounts in an IT industry.

i) In Manufacturing set up you have basic raw material, Work in Progress, finished good(stocks) and sold goods. These are all verifiable / Physical goods.
ii) At the sales stage, you are also bound to have have physical document/entries related to Sales tax,Central exercise, pick slip, pack slips or Bill of lading etc.
In an IT services industry both the above are missing and human minds are the biggest element in cost of sales, one can easily manipulate the sales number as its not possible to relate it to number of person working or the space to the sales or the raw material consumed for building.
I also personally feel, a few 'bogus' IT company registered as STPI can easily bring in "black money" parked in the foreign banks against IT services invoices and make this money accountable for any new investment and on top of it there is an 10 year STPI tax holiday(expected to end by 2009, which has been extended by our former FM) for IT services firm.
Eventually, by reporting higher sales/margins the 'Share prices' are goes Sky high and promoters turn 'CASH' rich.

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The Satyam episode.......

Tuesday, January 20, 2009

After Ramalinga Raju resigned from Satyam computer Ltd Board. There are discussion about a Govt Bail out and even one of the Minister in the present Central govt even hinted about a possible "Bail out". But, I believe this is little immature..

For the new board/Govt its not going to be easy task, it would be inviting more troubles for the following reasons.

i) Apart from public shares, Satyam has ADR ( US funds) and most of the time the top management/new directors/Govt will spending the time and money in US courts to protect themself.

ii) Good to have board, but more importantly clear & correct financial statements should be made public within few weeks. This will show whether company or 'viable' or is it in the category of 'Lehman brothers'.

iii) India govt should decide whether it has to be capitalistic or communist. It can't be both, if the approach is to be capitalistic, then like 'enron' it should be allowed to die naturally.

iv) Lastly but not the least, Satyam had recruited in large number of resources without any plans(THIS MIGHT BE EVEN BE APPLICABLE TO SOME OF THE OTHER INDIAN SOFTWARE COMPANIES AS WELL) and this is a a big overhead, particularly when even a single quarter is Bad. For example to keep the Satyam going requires about Rs 600 crores(53,000 employee) per month. Hence ideally assets of Satyam should sold and all the stakeholdersbe compensated including the employees.

This list might not be exhaustive and hence ideally other 'Tax payer' money should not be used for bailing out Satyam....

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