“SINKING SHIP OR TIP OF ICEBERG” SATYAM FIASCO “SINKING SHIP OR TIP OF ICEBERG”

Company Profile Founded by Mr. Ramalinga Raju & Mr. B. Rama Raju on 24th June,1987 Fourth largest IT Outsourcing Company of India Employees more than 40,000 in India High Global reputation Offers services to more than 550 MNC’s

The Biggest Corporate Fraud Motive Behind the Scam: To maintain the pace of growth To please investors and shareholders To justify the inflated P/E multiples.

Unveiling the truth On 8th Jan,2009 the truth was relieved to the world. It was in the form of a 5-page letter given by Mr. Ramalinga Raju to the Board of Directors. Various confessions were made in this letter.

Confessions Made Neither myself, nor the managing Director (including our spouses) sold any shares in the last eight years-excepting for a small portion declared and sold for philanthropic purpose. That neither me, nor the Managing Director took even one rupee / dollar from the company and have benefitted in financial terms on account of the inflated results. Non of the board members, past or present, have any knowledge of the situation in which the company is placed. None of my or Managing Director’s immediate or extended family members has any idea about these issues.

Bridging the Gap SATYAM MAYTAS It all started on 16.12.2008, when Ramalinga Raju thought, buying an infrastructure firm . Raju and his immediate family members own up to 35% stakes in Maytas. Satyam intended to buy 100% stakes in Maytas Properties for $1.3 Billion and 51% stakes in Maytas Infra for another $300 Million. Non of the investors & fund managers were aware of the bid.

Violation of the Companies Act Violation of Section 372A of Companies Act. -Acquiring shares in another corporate for an amount not exceeding 60% of the acquiring company’s share capital & free reserves. -Passing resolution through a postal ballot & giving advance intimation to the RoC (Hyderabad) Violation of Section 293 of Companies Act. - Failed to pass resolution regarding the proposed acquisition of stakes in Matyas Infra. & Matyas Properties.

Satyam's path to disaster Following is the chronological summary of the events which send IT major Satyam Computer Services, founded in 1987, to disaster: December 16: Satyam gets board's approval for acquisition of Maytas Infrastructure and Maytas Properties for $1.6 billion December 18: British mobile solution provider Upaid files a suit against Satyam in a district Court in the US over Maytas deal. December 25: Mangalam Srinivasan, non-executive and independent director resigns from board. December 27: Promoters disclose that their entire holding in Satyam pledged with institutional lenders since 2006. January 1: Satyam-Upaid case hearing over the Maytas deal in Texas court on January 7.

January 2: Promoter holding in Satyam drops to 5. 31 per cent from 8 January 2: Promoter holding in Satyam drops to 5.31 per cent from 8.27 per cent after sale of pledged shares by lenders. January 6: Raju family holding in Satyam falls to 3.16 per cent after sale of pledged share by lenders January 7: Satyam Chairman Ramalinga Raju sends letter to board tendering his resignation and admitting to fraud in accounting books. January 7: Satyam Managing Director B Rama Raju also resigns January 7: DSP Merrill Lynch terminated its advisory engagement with company

SATYAM CASE IN VIEW OF CORPORATE GOVERNANCE The whole perception of Corporate Governance was shaken to the very roots. Those companies who had already a question mark over their Corporate Governance were very badly hit. The realty sector, with its complex land bank valuations had been the worst hit. The firms with Satyam in their portfolios are trying to sell other stocks they held creating a situation in which short sellers reveled and rumors flew. 

CURRENT ASSESTS 376 NO ACCURRED INTEREST LIABILITIES 376 Cr ACTUAL CASH IN BANK IS 321 INFLATED 5040cr 2651.6 5312.62 ACTUAL DEBT IS 2161 OVERSTATED 490 Cr 376 NO ACCURRED INTEREST 376 Cr LIABILITIES UNDERSTATED LIABILITY 1230 Cr which is arranged by Mr.Raju REVENUE 2700 OPERATING MARGIN 690 ARTIFICIALLY ADDED 588 OPERATING PROFIT ADDED 588 INCREASING THE CASH RESERVE ONLY FOR Q2 ALONE TO 588 5040+376+1230+ 490= 7136

GROWTH IN THE OPERATING PROFIT ACTUAL OPERATING MARGIN 61 Cr ( CREATED AN ARTIFICIAL REVENUE OF 588) GROWTH IN THE OPERATING PROFIT

ADJUSTED BALANCE SHEET

RATIO ANALYSIS CURRENT RATIO : CURRENT ASSESTS/CURRENT LIABILITY CASH RATIO : CASH & BANK BALANCE + CURRENT INVT / CURRENT LIABILITIES BEFORE ADJUSTMENT AFTER ADJUSTMENT = 8788.2 1603.07 = 5.48 : 1 = 2882.2 2833.07 = 1.01 : 1 BEFORE ADJUSTMENT AFTER ADJUSTMENT = 5854.8 1603.7 = 3.65 : 1 = 814.8 2833.07 = 0.28 : 1

RATIO ANALYSIS (cont…) OPERATING PROFIT RATIO : OPERATING PROFIT / SALES X 100 EARNING PER SHARE : NPAT – PREF DIVIDEND/ NO OF EQUITY SHARE HOLDERS BEFORE ADJUSTMENT AFTER ADJUSTMENT = 649.27 X 100 2700.52 = 24.04 % = 61.00 X 100 = 2.25 % BEFORE ADJUSTMENT AFTER ADJUSTMENT = 597.43 67.35 = 8.87 RS = 9.430 = 0.14 RS

IMPACT ON STAYAM SHARE PRICES PLUNGES JAN 7

IMPACT ON STOCK MATKET: shares fell to 6.00 rupees on 10 January 2009, compared to a high of 544 rupees in 2008. The sensex fell from its closing peak of 20,837 on January 8, 2008 to less than 10,000 by October 17, 2008. Sensex on Wednesday tumbled over 340 points at noon to dip below India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on January 12 and added Sun Pharma In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80. The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009. Withdrawal of FII of actual $66.5 billion at the beginning of 2008 to pull out of $ 11.1billion during the first nine and a half months of 2008 triggered a collapse in the stock market. Withdrawals in FII also led to sharp depreciation in rupees.

Regulators in action: Department of Company Affairs(DCA): Scanning for further misappropriations in the balance sheet. CLB(Company Law Board): Looking into the violations of the Securities Act. SEBI: Investigating matters relating to trading of shares. Serious Frauds Investigation Office: Constituted with members from SEBI, RBI, CBI etc for investigating under DCA. Enforcement Directorate: Looking into possible violations of rules governing foreign exchange transactions. CID/CBI: Investigating the criminal aspects of the fraud.

Tech Mahindra acquires Satyam +

ABOUT TECH MAHINDRA Tech Mahindra is India’s 6th largest software exporter, and serves telecom service providers, equipment manufacturers, software vendors and systems integrators Operations over 25 countries Around 25,000 professionals across the globe Strong presence in Europe and Germany

BITTER SWEET DEAL The potential bidders were Larsen & Turbo, Tech Mahindra and Wilbur Ross. Tech Mahindra = 58/share Larsen & turbo = 45.9/share Wilbur Ross = 20/share Tech. Mahindra will Buy 31 percent of Satyams equity share, followed by a further acquisition of 20% through an open offer Tech Mahindra will pay Rs 2,900 crores for 51% stake.

Highlights of Tech Mahindra Bid Tech Mahindra emerged as the highest bidder. The bid as made by the company’s 100% subsidiary venturbay consultants. Management plans to raise debt through SPV. A company claims to have largest support from its largest client BT. The management intends to meet key clients of the company personally to restore their faith and confidence in satyam’s service delivery and governance. Tech Mahindra has acquired 475 acres of land assets of Satyam.

Impact of Acquisition Satyam is completely complimentary to Tech Mahindra with negotiable business overlap. Satyam has strong presence in US and Tech M has strong presence in Europe. The stock price of Tech Mahindra has raised appreciably from of Rs.200 to Rs.365 in a short span of 1 month. Employee satisfaction Customer Retention

Satyam & PWC The audits were conducted by Price Waterhouse Cooper in accordance with applicable auditing standards. As per Satyam's accounts, vetted by Price Waterhouse, auditors were paid Rs 3.73 crore during 2007-08 as against Rs 3.67 crore in the previous fiscal. Credibility of audit firms has come into question as the amount was too big for any audit firm not to notice. If the audit firm claims that they didn’t know about then their capabilities would come under the scanner,

A fallout of the Satyam case is the issue of delays involved in enforcement of Indian corporate laws. Shareholders should ensure that the composition of Board of Directors is a balanced mix of independent directors and management appointees. Ties between the company management and auditors and independent directors need to be cut.

Securities and Exchange Board of India (SEBI), has called for peer reviews of audits among the companies that are part of the Nifty and Sensex indices. Regulation and transparency can only serve to lower the incidences of fraud.

``Investing in Corporate Governance Companies need to invest in good governance Corporate governance has a direct bearing on business performance and thereby ROI A study reveals that- On an average, businesses with superior governance practices generate 20 percent greater profits than other companies

IMPACT ON 'BRAND INDIA Damage to India's appeal for foreign investors and the IT services industry. IMPACT ON IT INDUSTRIES: It greatly affected the Indian IT sector. The impact is short-term. The bluest of blue-chip reputations [such as] Infosys and TCS" could actually gain in the current environment, because of a potential "flight to quality" among client companies. The third-tier and weaker companies will probably undergo a lot more. IMPACT ON INDIAN ECONOMY: Minimal effect on Indian economy as it was an isolated incident.

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