Satyam Computers: "Raju Ban Gaya Gentleman"

'Satyam' is a Sanskrit word which means 'truth'. This is ironic considering that the Chairman of Satyam Computer Services, B Ramalinga Raju issued a statement revealing that the company's sales, profits and balance sheet is fictitious. He added that the company's accounts are fictitious due to overstating of profits in the last few years. Raju said that the company's balance sheet which carries inflated cash and bank balances of Rs 5040 Crore (as against Rs 5361 crore reflected in the books) is non-existent. He added that an accrued interest of Rs 376 crore is also non-existent. The company has understated liability of Rs 1230 crore on account of funds arranged by Mr Raju. The overstated debtors position of Rs 490 crore (as against Rs 2651 reflected in the books).

View the company Media release here
View the submission made to the Bombay Stock Exchange here

In a nutshell, this is the biggest corporate fraud in Indian History.

The revenue and profits have been inflated and the stated cash on the books is non-existent. The company was declaring huge margins when in reality the margins were only about 1/8th of the declared margins. Such large-scale manipulation went on for so long and nobody smelt a rat.

Certain questions become relevant at this time.

Show Me The Money

The promoters of Satyam a few years ago owned almost 25% of the company. Over the years they sold their stake reducing their stake to just 3%. Where did the money go?

Future Of The Company

Will Satyam survive this ordeal? Will clients and/or employees desert the company? Is any white knight interested in taking over the company?

Future Of The Employees

What will happen to the 53000 employees of Satyam? There is a distinct possibility that thousands may lose their jobs. The fallout has to be managed properly. The IT Services Industry is in the midst of a slowdown so the probability that competitors will absorb laid-off workers(if any) is low.

The Role Of The Auditors

Price Waterhouse are the Chartered Accountants for Satyam. What was there role in this fraud. Were they deceived by the Satyam management or were they co-conspirators? Read the auditor's report of Satyam Computers in March, 2008.

The Role Of The Management

It seems highly implausible that a fraud of this magnitude could have been orchestrated by just one person. What about the CFO of the company? The Board Of Directors? The Senior Management like unit-heads and vice-president level guys? How deep does this go?

Impact on Indian Stock Market

The reaction by the stock markets was swift and brutal. Satyam's share price plummeted by 77% from Rs 178 to Rs 41. The broader markets also fell with the Sensex falling 750 points. What about the long-term impact? How will FII's perceive this event? Will it lead to a permanent derating of India?

More questions are certain to arise over the next few days and weeks. What is certain is that the issue has the potential to damage India's reputation as an investment destination so, the fallout from the mess has to managed properly.