Satyam forecast buoys gloomy sector

BANGALORE: Satyam Computer Services lifted some of the gloom surrounding India”s software services sector on Thursday when it posted flat quarterly earnings but gave a bullish outlook, reducing fears of sliding margins in a maturing industry.

Satyam, India”s fourth largest software services exporter, cheered investors in Indian computing outsourcing stocks with a forecast of better-than-expected earnings growth. Its stock initially fell but later traded up six percent, lifting the shares of its rivals.

The results came after its peers, Infosys and Wipro, posted disappointing earnings earlier this month and warned of sliding profit margins amid increased competition.

“Overall, the results do not appear to be as bad as the market was expecting. Hence, it has taken away some gloom,” said Anil Sarin, a technology fund manager with Birla Sun Life Securities.

The warnings had raised fears that the boom in outsourcing of computing services to India, where wages are lower than in Europe and North America, is fizzling out as costs and competition rise.

Satyam, which counts General Electric as its top client, forecast its earnings per share this year would grow seven to 10 percent and income from software services would rise 15 to 17 percent in dollar
terms.

“The real positive is in the guidance, which looks very good although slightly ambitious,” said Mahesh Vaze, software analyst at Refco-Sify Securities.

Satyam shares were up six percent at 158.6 rupees in late trade. Infosys shares rose 1.9 percent to 2,936 rupees and Wipro rose 2.1 percent to 930 rupees. But they all remain around 15 to 20 percent below their levels before the warnings from Infosys and Wipro, which shocked many who had bet on further strong profit growth in the booming area of computing outsourcing.

U.S-listed Satyam, which has 270 clients, posted a profit, before exceptional items, of 1.16 billion rupees in the fourth quarter ended March 31, against 1.15 billion rupees a year earlier. Revenues rose 14.5 percent to 5.53 billion rupees, but higher staff and marketing costs kept underlying profits flat.

This was in line with the median analyst forecast in a Reuters poll for net profit of 1.17 billion rupees and revenue of 5.4 billion rupees.

BIG EXCEPTIONAL WRITE-OFF

Satyam”s shares initially fell nearly eight percent immediately after the firm first reported a quarterly net loss after exceptional items of Rs 359.16 million, compared with a profit of Rs 744.01 million a year earlier.

But this was after a write-off of Rs 1.52 billion, including Rs 1.26 billion for the loss in value of an investment in a subsidiary.

Satyam, based in Hyderabad, had cut its earnings estimates in January for the just-ended fiscal year as its top clients mostly from the manufacturing segment, reduced orders in an uncertain business
environment.

&;Reuters