January 07, 2009

'No' Satyam

Absolute Fiasco at Satyam Computers.

Trying to acquire family company can be an error in judgment, but systematically manipulating the profit numbers is criminal activity.
Giving details of the financial irregularities, Raju said the company's balance sheet as of September 30 carries "inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books."

The balance sheet also carries "an accrued interest of Rs 376 crore which is non-existent, an understated liability of Rs 1230 crore on account of funds arranged by me (Raju), an overstated debtors position of Rs 490 crore (as against Rs 2651 crore reflected in the books," Raju said. He further said that Satyam reported a revenue of Rs 2700 crore (Rs 27 billion) for the September quarter and an operating margin of Rs 649 crore (24 per cent of revenue) as against the actual revenue of Rs 2112 crore (Rs 21.12 billion) and an actual operating margin of Rs 61 crore (3 per cent of revenue).

"This has resulted in artificial cash and bank balances going up Rs 588 crore in Q2 alone," Raju said. "The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance)."What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years," Raju further said.

"It has attained unmanageable proportions as the size of the company operations grew significantly... The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations thereby significantly increasing the costs," he said.

"The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be," he said.

Should wait and see as to what will happen next. Another thing, if manipulation of this magnitude can happen in Satyam, it is time we have a look at corporate governance of other companies too.

p.s: I actually liked the way the disaster was put in words .."It was like riding a tiger, not knowing how to get off without being eaten,"

1 comment:

Krishnan said...

All the numbers are mind boggling, I just cannot figure out how scam of this magnitude went undetected so long ?