MAHARSHI DAYANAND COLLEGE

(pAREL)

Project title :
Case study on “satyam computers”
(the mega corporate fraud)

Name - rohit s shinde

Roll no - 46
Class - fybmm
Case :
Satyam Computer Services Ltd

It 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 40,000 IT
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,

Kolkata, Bhubaneswar, and Visakhapatnam. 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 billion comprising of US$ 1.3 billion for the
100% stake in Maytas Properties and US$ 0.3 billion for
the 51% stake in Maytas Infra. This is the move that
sparked a row over alleged violation of corporate
governance laws.This deal was not profitable for
investors .So after this announcement they started to

raise their voices against the deal. The company has

huge land banks and the prices have dropped down in
the real estate significantly.

Analysis :

"The truth is as old as the hills" opined

Mahatma Gandhi, So a company named "Satyam" (Truth,
in Sanskrit) inspired trust, Satyam Computer’s is a
multinational company established in 1987 by
B.Ramlinga Raju in Hyderabad, India. Company offered
information technology (IT) services spanning various
sectors all over the world & was very well known in Stock
Exchange with an increasing price of the shares of
company.
 Satyam network covered around 67 countries
across six continents with 40,000 IT Professionals working
in India, US, UK, UAE, Canada, Hungary, Singapore,
Malaysia, China, Japan, Egypt and Australia. It even
serves 654 global companies.
Within no time, business was booming. Andhra
Pradesh, of which Hyderabad is the capital, has one of
the largest pools of skilled manpower in India. Satyam
would prove a doughty competitor to its rivals, pricing its
services so aggressively that some thought it was
prepared to go with minimum profits in order to gain
customers. And it expanded aggressively overseas. When
he opened his Sydney office a few years ago, he occupied
premises vacated by a top global IT firm. In China,
provincial leaders vied to invite Satyam to set up
operations in their areas. But once Mr Raju sold shares to
the Indian public in 1992 and later, went for a New York
listing in 2001, pressure grew on him to improve the
company's performance. Ever competitive, he was also in
a rush to catch the market leaders, Tata Consultancy
Services, Infosys Technologies and Wipro. Raju was
obsessed with getting past the billion-dollar sales mark.
When he got there, he wanted to post US$2 billion.
Satyam posted US$2.1 billion (S$3.1 billion) sales in the
year to March 31; 2008.With the ever-rising pressure to
perform, Satyam began doctoring the books to show
bigger profits by manipulating the balance sheet, a
process that began several years back.
For Satyam, the recent developments are a direct
leftover of the past. In fact, the story is about a decade
old. In late 1999, IndiaWorld — a largely unknown
internet firm — was acquired by Satyam group company,
Satyam Infoway, for an eye-popping Rs 500 crore. The
consternation that accompanied this deal was not hard to
comprehend. IndiaWorld had a topline of just Rs 1 crore
and a net profit of an insignificant Rs 25 lakh. At Rs 500
crore, Satyam Infoway, later renamed Sify, was paying
this astronomical sum not just for IndiaWorld but for a
number of sites that came with it — among them were
samachar.com, khel.com and khoj.com. The argument
dished out was based on the potential of the internet
business and the logic of eyeballs was driving this
valuation story. One was not sure about the source of
funds and how much money went back to Ramalinga
Raju.
A few months later in 2000, shareholders of Satyam were
an irate lot. At the annual general meeting (AGM) of the
company in Hyderabad in May 2000, shareholders
accused Satyam of withholding facts and claimed they
were defrauded. This was after the merger of three
subsidiaries — Satyam Enterprise Solutions (SESL),
Satyam Renaissance Consulting and Satyam Spark
Solutions — with Satyam Computer Services. Post
merger, 8 lakh shares of Satyam Computers were allotted
to C Srinivasa Raju, who was then Satyam Computers’
executive director.

Shareholders contended that SESL had made a rights

issue of 12 lakh shares at par just before this merger. A
third of this was bought by Satyam Computer while the
remaining 8 lakh shares went Srinivasa Raju’s way after
they were renounced. Once shareholders of SESL were
given shares in Satyam Computers in a 1:1 proportion,
Mr. Raju got 8 lakh shares at just Rs 10 each, when the
shares were trading at a whopping Rs 1,600. The
management of Satyam Computers, however, maintained
that things were above board, though shareholders
thought otherwise. The seeds of accounting manipulation
in Satyam were sown several quarters before Ramalinga
Raju’s communiqué to the board on Wednesday, 7th Jan-
09. In 2002, the department of company affairs (DCA)
was in receipt of a slew of complaints from Satyam’s
shareholders that there were accounting irregularities in
the company. Here, it was stated that Satyam’s directors
invested unwisely in subsidiaries that were
underperformers. This merely facilitated the process of
tax evasion and employing methods such as writing off
large amounts on depreciation.

At first blush, Raju’s statement to the board (Raju’s letter

to the board Appended as Annexure I) in which he
confesses to inflating profits appears a act of contrition
by a man who was willing to stand up and face the music
for his transgressions. If Raju was dressing up the bottom
line, it was only to boost the company’s valuation and
ensure that it stayed in the big league of IT services. A
higher valuation also enabled Raju to borrow more money
against his shareholding

Queries :

1. Why Raju manipulated the Balance Sheet?

Ans. Mr Raju started doctoring the sheet simply to show superior

performance and to be in competition with the market leaders.
His ever increasing pressure of performing made him manipulate
his sheets.

2. Why Satyam announced that it will

acquire Maytas properties and Maytas Infra?

Ans. Company announced Acquisition of 51% stake in Maytas

Infra and 100% stake in Maytas Properties on 16th Dec 2008 to
hide the irregularities in the accounts which were lasting from last
few years.

3. What Management could do?

Ans. A) Restore the Management of the compant & appoint

some reputed people as BOD.

B) Try building confidence in clients to get back the lost

projects

C) It could also be merged with any other software

company

4. How much was the actual fraud

recorded?

Ans. His sheets recorded the following :

a) Sundry Debtors 2651.6 Cr

Actual Debt was 2161; Over stated 490 Cr Overstated 490 Cr CrCr
b) Cash & Bank Balance 5312.62 Cr
Actual cash in bank was 321Cr Inflated 5040 Cr
 c) Interest on Fixed Deposit 376 Cr
No Accrued Interest exist No Interest 376 Cr
d) Libility
Mr Raju arranged Libility himself 1230 Cr Liability 1230 Cr

490 + 5040 + 376 + 1230

7136 Cr

5. If Satyam was fudging profits, where

were the funds for all-cash acquisitions
coming from?

Ans. Sr.No Year Acquired Firm Profession Funding

(Amount in $)
1) Apr-05 UK based Citisoft PLC Business Consulting Firm 38Mn
(Paid in tranches)
2) July-05 Singapore based Knowledge Dynamcis Consulting
Solution Provider 3.3 Mn (All cash deal)
3) Oct-07 UK based Nikor Global Solutions Infrastructure based
management services and consultancy group 5.5 Mn (All cash
deal)
4) Jan-08 Chicago based Bridge Stratergy Group Management
consulting firm 35.00 Mn (All cash deal)
5) Apr-08 Caterpiller Inc Market research and customer analytics
operations 95.5 Mn for both deals (all cash purchase)
S& V Management Consultants Supply chain management frim