Recently when Mahindra Satyam restated its financial statements for the years FY09 and FY10, after a gap of almost two years, industry watchers couldn?t help but wonder how far the company had come in its quest to escape its disastrous past. The key question was whether the company, which once was the preferred business partner for more than a third of the Fortune 500 companies, manage to regain the trust it lost when it committed the country?s greatest corporate scam?
The answer is that Mahindra Satyam today is in a much better shape to bid competitively in the market. The company?s balance sheet and financials are expected to boost confidence among clients going forward. For the last two years, the company couldn?t request for big proposals as large organisations look for strong financial disclosure and steady balance sheet for their outsourcing partners so that they know the company can handle bulk deals. Having the results out will now allow Mahindra Satyam to compete in the market with other players.
Sanjeev Hota, senior research analyst, Sharekhan, says, ?Future looks much brighter for Mahindra Satyam now. The situation is definitely going to improve with the company announcing results. Now it can more openly pitch for big projects and clients.?
Analysts feel Mahindra Satyam, which has a predominant market in the US and APAC region, will continue to drive their major business from these regions. Business is expected to come from sectors like BFSI, retail and manufacturing, the anchor verticals for the company. ?North America will generate the highest chunk of volume for the company and will be the major growth driver,? says Hota. In FY10, Mahindra Satyam got its largest account from North America. It also added clients in sectors like manufacturing, healthcare and public sectors.
The company has also planned investments in infrastructure and cloud-based applications to attract more clients. ?Technology will be the differentiator for us. We will continue to invest in infrastructure management, BPO, enterprise management and manufacturing,? says CP Gurnani, CEO, Mahindra Satyam.
?The company has competencies in enterprise management and by investing into it further to scale up its vertical expertise will help it to participate in end-to-end transformational engagements across various industries,? says Srishti Anand, IT analyst, Angel Broking.
However, pricing model will be a difficult task for Mahindra Satyam and getting quality clients at the right price will be a challenge. ?To retain clients either they have to offer discounts compared to competition or clients should have trust in their domain expertise. They have to leverage their Tech Mahindra expertise to get big clients,? says an analyst. After the scam broke, the company offered huge discounts to their clients to retain them. Industry experts are confident of Mahindra Satyam adding large deals to their kitty, but how they do it is a question that needs to be answered.
After Tech Mahindra took over the reins of Satyam Computers in April 2009, the management started restructuring the business to get the company back on track.
However, it was not an easy task for the company. Post the scam in January 2009, the company experienced heavy churn in clients asking for outright termination.
The company lost 194 clients resulting in a 38% drop in revenue year on year. Mahindra Satyam lost majority of its clients in the BFSI space where it holds strongest domain expertise. ?It appears that client loss was in the key account and it will take another two to three years to scale it back to FY09 levels,? says Anand. However, it managed to add 44 new clients across sectors in FY10, with major chunk coming from the BFSI segment. The company bagged the largest deal from the BFSI sector, one of its core vertical. As one of the new account, it added the largest bank from Australia. ?For any IT company, the new client relationship begins with small engagements typically in the range of $1-5 million or even less. Thus these new client accounts will take time to add incremental value to Mahindra Satyam,? adds Anand.
Mahindra Satyam, the then Satyam Computers, had 500 active clients before the scam broke out in 2009. Currently, it has been able to hold on to 350 clients. It?s not just client attrition, the company had to battle with high employee attrition rate of 40% year on year too. Scam-hit Mahindra Satyam is struggling to retain their employees at all levels. The employee count has declined from 45,000 in FY09 to 27,000 in FY10 indicating the severe ramp-down mode that the company was in through FY10.
Analysts feel that rising attrition will be a major issue for the company and supply chain constraints will be a challenge to deal with. To curb attrition, the company has planned a significant campus hiring and has also started a buddy-referral programme. ?We have hired about 3,000 people and mostly at entry level. They have almost finished their training and now the plan is to hire some more,? says Hari T, chief people officer, Mahindra Satyam.
Satyam, which provides back office support and IT services to hundreds of companies, has Cisco, General Electric and GlaxoSmithKline among its top-listed clients. However, going forward industry watchers feel the company?s current financial position will be truly reflected in its recent quarter performance, which is due to be out in mid -November. ?We await those numbers to decide on the future trajectory,? says Anand.