Satyam to report operating losses in the medium term. Its operating margins are already very low at 3% (relative to the peer group average of 22%), and are likely to fall further due to lower employee engagement, increasing client and employee attrition, and the diversion of management attention towards investigations, lawsuits, and public scrutiny. According to Indiabulls Research Report, the uncertainty surrounding the company and the apprehensions related to job security will likely lead to significant employee attrition, which will hurt the company?s competitiveness. As per news reports, around 50% of Satyam?s employees have already floated their resumes in the market.
According to Indiabulls report, significant client attrition over the next few quarters is expected as many customers are likely to review their contracts. This year $500 mn worth of contracts, which account for nearly 25% of the overall revenues, are also up for renewal; other clients are also likely to terminate their association with Satyam. Besides, given the concerns related to corporate governance, it will be difficult to win new deals. Moreover, in the event of any acquisition, integration may prove tricky and time-consuming. The acquirer will need to replace a large part of the senior management team, given the corporate governance and integrity issues surrounding them. On top of it, restoring client confidence and re-building delivery teams would prove to be extremely difficult.
