We are where we are. After dot com bubble in 2000, Indian IT industry has given many surprises to us. It is the industry which has given us Brand India. It is Industry which has made India Shining an outsourcing hub of the world. From piping big consulting giants to bag multi-million dollar contracts, to setting up offices all across the world, to creating a whole new value for Brand India, and most importantly, to instilling a sense of pride & achievement within a young nation. These were the companies that you looked up to for transparency, corporate governance, proper reporting, and in general, doing the right thing. But from time to time, hubris & greed keep rearing their ugly head among the best. And so it did in the case of Satyam Computers.Raju confessed to having committed fraud over the last several years, and admitted that he had cooked up the books of the company. Consider this admission of guilt - Non-existent cash of over Rs 5,000 cr. Non-existent interest accrued, overstated debtor positions and an understated liability of Rs 1,230 cr. Net-net, an overstated and cooked up book to the tune of over Rs 7,100 cr. That's on a revenue base of Rs 8,000 cr. Or can we still believe that? Raju admits that for the September quarter alone the actual revenues stood Rs 2,112 crore, instead of the reported Rs 2,700 cr, and, hold your breath, operating margin stood at Rs 61 cr, and not Rs 649 cr as reported!!! So that's a 3% operating margin, instead of a slightly below par 24% as reported.I find it hard to believe that this fraud was committed to inflate earnings. If that were the case, the Rajus would have sold at least some of their stock. Did they believe that this was going to continue forever? As othershave pointed out, a 3% operating margin is very hard to believe. The downward pressure on rates in IT Services simply isn't enough to cause that, assuming that salaries were on par with other IT Services companies. So the question is, where did all that money go?
When the world is reeling under a credit crisis, stock markets are spiraling to hitherto unknown depths, the mayhem is spreading to other sectors after affecting manufacturing and housing, unemployment in the West keeps augmenting, general investor sentiment is to hoard cash under the mattresses, the world needs some strands of hay to cling on to! Unfortunately, now, since freely flowing credit has dried up, all the skeletons are coming out of the closet, much like the bones on a riverbed can be seen during a hot summer as the river dries up!
My first question is how? Just how can an auditor miss figures so huge? Aren't you supposed to check the bank balances also? Just what due diligence was done? Was the management's word taken at face value? Who audits the auditor? What were the independent directors doing? The problem may be old but is also one which keeps creeping up time and again to pinch us on the rear. It's almost a case of not wanting to bite the hand that feeds you. My second question is that how one can do fraud of this magnitude without involving dozen of others??
Now Mr Raju sounds very sorry about the whole affair and volunteers to subject himself to the "laws of the land and face consequences thereof". How noble of you sir, having hoodwinked millions of shareholders, numerous financial institutions and your own 50,000-plus employees.
So what should the large investors do with this fiasco that they have landed up with? First course for the Ministry of Corporate Affairs and the Securities & Exchange Board of India should be to put in place a temporary management team, comprising of proven leaders from the industry, none of whom have ever been associated with Satyam. Next would be to book, charge sheet, try & place under custody Ramalinga Raju, his brother & his CFO; before even the US SEC & class action suits come into the picture. Then investigate the accounts, restate them, and similarly charge sheet, penalize and put a lifelong ban on Price Waterhouse (the auditors). The next step should be to touch base with each client, build confidence, recount the steps taken to clean the company up, and reassure continuity of operations. Lastly, the interim management should then hand over the reins to a permanent team, once again comprising of non-Satyam people, or if at all, to those within Satyam who have not been remotely close to the previous top management. Also, care should be taken to meet each team of employees separately, make them feel a part of the clean-up drive, take their suggestions on board, and most importantly, arrange for some quick bridge funding to pay their salaries (as the books should show, Satyam would be deep in the red with hardly any cash)
This has loads of implications and repercussions. India has a rather strongly regulated banking sector. So, India was spared the debilitating effects of the credit crisis the world now faces. IT and IT services are India's main USP. So, facing fraud in the sector that in a way differentiates India from other emerging markets is, tough and sad to say the least. Investor and client sentiment would decidedly begin to spiral down. Where can India then move to find its elusive economic stronghold?
This incident has not only done incalculable damage to the image of India Inc, but by virtue of it being unearthed in the poster boy sector of India's corporate world, it has perhaps rocketed our credibility back by a decade or two. You could argue that this is an isolated event and such scandals keep happening around the world. Perhaps this won't change the contours of the Indian IT industry and maybe, just maybe, overseas clients will at best relook their vendors and shift a few. But the question is one of long-term trust. Will Indian companies be able to convince them to do mission critical, high revenue yielding business with India Inc? We may get off a lightly this time, but one thing's for sure - the Infosyses, Wipros, HCLs, Tech Mahindras and Patnis of the world will have to work that much harder to get those huge BT kind of deals again.
Well it is test of Government, SEBI, Corporate India, ICAI, Regulators, Indian IT, Investors and new management of Satyam to make the things worked out. I really scared what will happen to those 50000 techies of satyam with this dark future???
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