Mahindra Satyam enters profit zone first time after scam

HYDERABAD/MUMBAI: Mahindra Satyam recorded profit for the first time in the first and second quarter of the fiscal 2011 after being hit by the country’s largest corporate fraud in 2009. The company, which was once ranked the country’s fourth largest IT services firm, is on its path to recovery and the growth is expected to be on par with other industry peers in three years, the new management said on Monday.

For the second quarter ended September 30, 2010, Mahindra Satyam recorded revenues of Rs 1,242 crore while the profit stood at Rs 23 crore. This was lower than the first quarter of FY11, when it registered a profit of
Rs 98 crore on sales of Rs 1,248 crore. The fall in profit in Q2 as against Q1 was mainly on account of wage hike and forex fluctuations.

“Prima facie, I see two negative surprises here. The EBIDTA margins have fallen to around 5.5% in the second quarter, and two, revenues have fallen from the first quarter to the second, indicating the company has been unable to stabilise them,” said Sandeep Muthangi, analyst at brokerage, IIFL. Mahindra Satyam’s operating profit for Q2 was Rs 65 crore, down from Rs 114 crore in Q1.

“We have reached a stability point and we are current on all accounts. It was a challenging journey so far and it is not over yet. We expect the overall recovery in the next two quarters to be gradual. But we are ready to go out and fight for getting business. In three years, we expect to be as profitable as any other company in this field,” said Vineet Nayyar, chairman of Mahindra Satyam.

The company’s profits have shrunk because of 40% fall in EBIDTA margins and also because of higher taxation in Q2, Mr Muthangi said. Mahindra Satyam gave out salary hikes to retain employees in an environment of high employee turnover in the software industry. Attrition for the country’s leading software exporters such as (TCS) and Infosys Technologies have also peaked in the first and second quarters of the fiscal.

Brokerage firm CLSA had said the company would find it harder to retain employees as demand for software services picks up and identified attrition as one of its major challenges. Mahindra is planning to use the synergy between M&M and Tech Mahindra to drive its growth.