This summary is based on the first quarter fiscal 2008 earnings call conducted by Satyam Computer Services Ltd. (SAY) on July 20, 2007.
Chief Financial Officer: V. Srinivas
Founder and Chairman: B. Ramalinga Raju
President, Commercial & Healthcare Businesses: Ram Mynampati
Chief Executive Officer, Nipuna: Venkatesh Roddam
Key Investors Issues
- For the quarter, EPS was at Rs.5.67 and basic earnings per ADS were at 28 cents.
- The revenue grew 10% in terms of dollars and 3% in terms of rupee.
- For Q2, the revenue is expected to be between $477.2 million and $479.4 million.
First Quarter Fiscal 2008 Financial Highlights
In the first quarter, the revenues grew around 10% sequentially in US dollar terms, and 3% in rupee terms as rupee appreciated 7% during the quarter.
The appreciation in the value of the rupee impacted the firm’s revenues by Rs138 crore. The company witnessed revenue growth across all verticals and similar achievements in its service offerings and regions. Engineering Services and Infrastructure Management Services grew by 14% and 36.4% respectively, validating significant investments in these areas over the past several years. Expansion in these services is over and above accelerated growth in Consulting and Enterprise Business Solutions, which grew by 15%, another strong showing for a practice that has grown swiftly and steadily for a long time.
In addition, our focus on maximizing customer value by delivering integrated business solutions and by partnering with them in their business transformation has resulted in stronger relationships. That also led to an increase in strategic engagements. For example, Nestle selected Satyam as a partner for its Global Business Excellence project in Q1.
Moreover, the firm’s continued focus on expanding its global footprint has resonated with the market. The company’s enhanced presence in Asia-Pacific and Europe has led to increased opportunities and regional growth. This along with the firm’s well-established strength in the U.S. positions it to leverage its global presence to service the transformational efforts of its customers.
Sequential volume growth for the parent company was 9.5%, with offshore volumes growing at 13%.
This is the fourth straight quarter of double-digit increase in offshore volume. Offshore billing rates were up by 1.31% and onsite rates increased by 1.46%. Due to rupee appreciation, EBITDA margins for the quarter declined by 64 basis points sequentially.
The consolidated margin as per Indian GAAP was 22.42%.
The rupee appreciation affected the margins by 230 basis points; visa cost impacted the margins by 100 basis points; increase in RSU charge impacted the margins by 40 basis point, and losses in subsidiaries impacted by another 30 basis points. The total impact on margins during the quarter was 400 basis points, which was mitigated to large extent by strong operating performance. Billing rates had a positive impact of 85 basis points on margins. Offshore contributed 60 basis points, utilization added 45 basis points to the margins and other operational efficiencies added another 145 basis points to margins. Net-net, there is decline of only 64 basis points in this quarter, despite such a steep rupee appreciation. Due to the appreciation witnessed in Q1, the firm now expects the margins for the whole year to decline by around 125 basis points, compared to last financial year. This is a year-on-year decrease of 125 basis points.
Increments have been finalized at 16% for offshore association, 5% for onsite associates. The impact of increments on the margins is around 350 basis points. The loss of margins because of increments was little bit recouped by operational efficiencies and the increase in revenue productivity. These increments come in to effect from July 1, 2007. They will have an impact on the margins in Q2.
The gross manpower addition in the parent company was 3,978 and net addition was 2,716, which included almost 1,300 freshers.
The firm now expects the gross manpower addition for fiscal 2008 to be around 15,000 to 16,000, against the earlier guidance of 14,000 to 15,000 stated at the beginning of year.
- The company''s cash and bank balances increased by $24 million during the quarter.
- CapEx for the quarter was $22 million. CapEx for fiscal 2008 is estimated to be in the range of $80 million to $100 million.
- Nipuna reported revenues of $11.9 million, a sequential growth of 4%. Because of 7% rupee appreciation and salary increments, at net level, Nipuna had a loss of $2 million. For fiscal 2008, Nipuna is expected to achieve revenue of $61 million and be EBITDA positive. In accordance with the earlier guidance of net profit, Nipuna is expected to have marginal losses for the year on account of rupee appreciation witnessed in first quarter.
- In the quarter, the company added 29 customers, including two Fortune US 500 corporations. The number of customers billing more than $5 million, increased to 65 during the quarter.
As per the US GAAP, revenue for the quarter grew 10% sequentially to $452.3 million and net income for the quarter was $93.1 million, a sequential growth of 8% after factoring in stock compensation charge of the $5.9 million.
