Case Study of Satyam Scam

index  •Introduction

to satyam computers, maytasinfra & maytas properties •Satyam-maytas fiasco •Why raju was failed •Confession of raju •How did he cook the balance sheet •Who is to be blame…!! •What was possible solution ..? •Current status of company

Introduction Satyam

Computer Services Ltd. is a consulting and information technology services company based in Hyderabad, India . It was found in 1987 by B.Ramalinga Raju.  The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext It is considered as an icon among the IT companies and at one point had over a billion dollar revenue

Satyam's

network covers 67 countries across six continents.  The company employs employ s 40,000 IT professionals professionals across development centers in India, the United States, the United Kingdom, the UAE, Canada, Hungary, Singapore, Malaysia, China,  Japan, Egypt and Australia. It serves over 654 global companies, 185 of  which are Fortune 500 corporations.

Satyam

has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, De lhi, Kolkata, Kolkata, Bhubaneswar, and Visakhapatnam.

Satyam Maytas Fiasco Satyam

Computers had on December 16, 2008, announced that it will acquire two group firms - Maytas properties and Maytas Infra  The BOD of Satyam had approved the founder’s proposal to buy 51 per cent stake in Maytas Infrastructure and 100 % in Maytas Properties.

 The

total outflow for both the acquisitions was expected to be US$ 1.6 bn comprising of US$ 1.3 bn for the 100% stake in Maytas Properties and US$ 0.3 bn for the 51% stake in Maytas Infra.  This is the move that sparked a row over alleged violation of corporate governance laws.  This deal is not profitable for investors .So after this announcement they started to raise their voices against the deal

Maytas Infra  The

company is run by the sons of Ramalinga

Raju It was started in the late 1980’s by Ramalinga Raju  The main reason for the debacle of Maytas Infra is due to the debacle of Satyam

Maytas Properties Ltd  One

of the reasons for the debacle of Maytas properties is the ongoing economic slowdown  The company has huge land banks and the prices have dropped down in the real estate significantly

Satyam’s justification for de-risk

the core business the integrated organization would be stronger and more diversified to deal with the uncertainty of the market. feeling that in the recent times it is difficult to make a strategic deal with other IT companies.

Reaction of Investors after the announcement of accusation of Maytas Investment

giant Templeton and brokerage house CLSA opposed to this decision.

Result of Investor’s It

results that part of investors succeeded to thwart an attempt by the minority-shareholding promoters to use the firm’s cash reserves to buy out two companies owned by them — Maytas Properties and Maytas Infra.  That aborted attempt at expansion precipitated a collapse in the price of the company’s stock and a shocking confession of  financial manipulation and fraud from its chairman, B. Ramalinga Raju

WHY HE FAILED……???? •

The promoters decided to

inflate the •

revenue and profit figures

of Satyam. •

In the event, the company

had a

So to fill up this gap…….. •

Company announced Acquisition of 51% stake in Maytas Infra and 100% stake in Maytas Properties on 16th Dec 2008 but

• The  The

deal was not profitable for investors •Investors dumped Satyam’s stock and threatened action against the management. •

  This was mainly done to hide the irregularities in the accounts of  Satyam

•

It is also said the close association with the political leaders is one of the

.

Confession

•He

tried to fill the gap b/w actual profits of  the company and the profits that were shown in records, balance sheets etc. and also tried to cope up the situation till last minute . But now the situation were beyond his hands and therefore he confessed the frauds(on Jan 7, 2009) made by him by showing inflated profits in the balance sheet •According According

to the‘confessional’ statement of Mr. Raju, the balance

• The  The

following statement he made in his confession letter – “Every attempt to eliminate the (balance

FINANCIAL SHENANIGANS

WHAT WENT •

•

•

•

Simple manipulation of  revenues and earnings To show superior performance Raising fictitious bills for services that were never rendered.  To increase the Cash & bank balance correspondingly. Operating profits were artificially boosted from

 AND HOW….????? Its financial statements for years were totally false, cooked up and... Never

had Rs 5064 crores (US$ 1.05 Billion) shown as cash for several years. Its liability was understated by $ 1.23 Billions The Debtors were overstated by 400 millions plus.

CURRENT ASSESTS

ACTUAL CASH IN BANK WAS 321 INFLATED 5040cr

376 ACTUAL DEBT WAS 2161 OVERSTATED 490 Cr

LIABILITIES

NO ACCRUED INTEREST 376 Cr

ARTIFICIALLY ADDED 588

UNDERSTATED LIABILITY 1230 Cr which was arranged by Mr.Raju

OPERATING PROFIT ADDED 588

INCREASING THE CASH RESERVE ONLY FOR Q2 ALONE TO 588

5040+376+1230+ 490= 7136

ACTUAL OPERATING MARGIN 61 Cr REPORTED-649 Cr( CREATED AN ARTIFICIAL REVENUE OF 588)

GROWTH IN THE OPERATING PROFIT

INFLATING THE PROFIT AND REVENUE

Satyam scam: So who is Who

is guilty in this sordid state of events? Raju is by far the father of this fraud. But there were others who are also culpable.

Satyam's auditors So what were the auditing 

company,Pricewater houseCoopers, doing? PwC has written a letter to the BOD of Satyam that its audit may be rendered "inaccurate and unreliable" due to the disclosures made by Satyam's (ex) Chairman.

Is it real? How could Auditors

do bank reconciliation to check whether the money has indeed come or not.  They check bank statements and certificates. So was this a total lapse in supervision or were the bank statements forged? No one knows yet.  The company officials said they relied on data from the reputed auditors.

The promoters Since the promoters, in 

this case, held only about 8 percent shares, their idea to push through the Maytas acquisition deal was defeated by an angry lot of shareholders.

Other company Satyam's

CFO Srinivas Vadlamani has already been arrested. But could only two or three people have managed to cook the books for years of a company so large? Highly unlikely.

The Sebi  The

Sebi had in December given a clean chit to Satyam in the probe on violation of  corporate governance law.

The bankers If

the auditors were conned, it means that either the bank statement and certificates were forged Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc

Directors and Despite

the shareholders not being taken into confidence, the directors went ahead with the management's decision.

The government  The government too is 

equally guilty in not having managed to save the shareholders, the employees and some clients of the company from losing lo sing heavily heav ily..

What Management Change

the name n ame of the company com pany.. Reconstitution of the board :Restore the management of the company and appoint some reputed people as the board of  directors.  Try building confidence in the clients to get back the lost projects.   The image of the company could be revived by a series of press conferences highlighting the ongoing contracts with the clients. It could also be merged with any other

Tech Mahindra wins bid for Satyam Scam ØTech Mahindra is paying Rs1757 crore for a 31% stake in the company, company, or Rs 58 per share. ØSatyam Computer Services has now zoomed 15% to Rs 54.20 ahead of the announcement of the highest bidder for the company on April 13, 2009. ØIn India this moment was full of praise for the manner and speed with which the reconstituted board of Satyam Computer

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