Satyam Q1 net down 10.7%

By : |July 26, 2002 0

BOMBAY: Satyam Computer Services Ltd. has reported a 10.7% drop in its net profit, which is slightly more than expected, but the company has stuck to its full-year guidance in view of an anticipated surge in the second half.

Net profit of 1.08 billion rupees ($22.3 million) for the April-June quarter came below the median estimate of 1.15 billion rupees in a Reuters poll. Total income rose 11.9 percent 4.71 billion rupees, versus 4.68 billion forecast by analysts.

India’s fourth-largest software services exporter, like its rivals, is fighting intense pricing pressure and relying on volume-led growth. It expects demand to pick up as corporations increasingly seek outside companies to provide information technology services. “The whole estimate of meeting the yearly numbers is based on our client base and the kind of ramp-up we expect,” Chairman B. Ramalinga Raju told Reuters.

“While we are seeing some pricing pressure in selective markets, we believe we are near or at the bottom of pricing pressure and expect it to stabilise,” Chief Operating Officer Ram Mynampati said on a conference call. The stock closed up 2.4 percent at 225.75 rupees at the Bombay Stock Exchange in afternoon trade after dropping initially.

“The results are in line with my expectations. There has been pretty good customer addition and quality of clients has improved…That should result in good volume growth,” said an analyst with a local brokerage who did not want to be identified. Software revenue for the quarter was characterized by 4.1 percent volume growth and 3.54 percent pricing decline.

Satyam said it added 27 customers in the quarter, including seven Fortune-500 companies. It now has 267 active clients, including General Electric and Sony Corp. Fifty percent of new clients have long-term potential.

Recovery in second half

Satyam said its full-year outlook remains unchanged. In April, it forecast earnings of 17.1-17.5 rupees per share for the year to March on software sales of 20.9-21.3 billion rupees. It forecast the net operating margin at 32 percent.

Raju said the company expects more business from existing clients because global companies have turned to IT outsourcing as strategic, signaling strong scope for scaling up. He said in a telephone interview from the company’s headquarters in Hyderabad that Satyam was cracking down on under-performing staff and cutting administrative expenses. For July-September, Satyam forecast earnings per share at 3.5-3.65 rupees and software income at 4.75-4.9 billion rupees.

Rival software firms Infosys Technologies and Wipro have forecast a small quarter-on-quarter sales growth for the current quarter. Mynampati told analysts Satyam had an order book of $250 million to be executed over the next 12-18 months.Satyam also launched a subsidiary called Nipuna, the Sanskrit word for expert, to offer business process outsourcing services, or back-office services delivered remotely over high-speed telecoms links. Satyam said it would start with a 250-seat facility that is quickly expandable to 750. No revenue forecasts were given.

Pratish Krishnan, an analyst with Cholamandalam Securities, said the key triggers for Satyam’s stock would be the extent to which Satyam’s BPO subsidiary is able to win business in the near-term and its deadline to sell its 52.5 percent stake in Internet affiliate Satyam Infoway.

Raju told Reuters a tough Internet market had delayed the intended divestment and that the company was hoping “to take advantage of whatever opportunity comes.”

(Additional reporting by Narayanan Madhavan and Anshuman Daga in Bangalore) (US$1 = 48.68 Indian rupees)

© Reuters

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