Monday, January 12, 2009

Full text of Raju's letter to the Satyam Board................

I have read somewhere this Letter but forget the site name.Authencity is unknown but reading it seems good and hence I am pasting it here.

From B. Ramalinga RajuChairman,

Satyam Computer Servcies Ltd

Dear Board Members,
It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The balance sheet carries as of September 30, 2008.

a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore reflected in the books).

b) An accrued interest of Rs 376 crore which is non-existent.

c) An understated liability of Rs 1,230 crore on account of funds arranged by me.

d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)

2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 crore 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 by Rs 588 crore in Q2 alone.

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. It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs 8.392 crore). 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.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

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 Satyams problem was solved, it was hoped that Maytas payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.

I would like the board to know:

1. That neither myself, not the Managing Director(including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.

2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from know sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results.

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as Ram Mynampati, Subu D T R Anand, Kesab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia. Ravindra Penu Metsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors immediate or extended family members has any ideas about these issues.

Having put the facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1) A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T R Anand, Keshab Panda and Virender Aggarwal, representing business functions, and A.S.Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2) Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.

3) You may have a restatement of accounts prepared by auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.

In light of the above, I fervently appeal to the board to hold together to take some important steps. Mt T R Prasad is well placed to mobalize support from the government at this crucial time. With the hope that members of the Task Force and the financila advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

Under the circumustances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My contribution is just to ensure enhancement of the board over the next several days or as early as possible.

I am now prepared to subject myself to the laws of the land and fact the consequences thereof.(B. Ramalinga Raju)Copied marked to:1) SEBI Chairman2) Stock Exchanges

My Comments:
Reading the text what I findout is ,seems that ,maybe there can be inflated cash shown and other credits in BS .Maybe the Revenue is inflated but reading it seems like that it is inflated by just around 10% and with 185 ,Fortune 500 ,clients then we can't doubt about the work Satyam was giving. That was going for past decade and none of the clients ever cancelled the orders or terminated them abruptly.That speaks for Satyam work and service.....There should be some Value for the goodwill they have created while completing the job.
Maybe the margin was very less just at 3% and hence not enough for 53000 employees to get paid.Raju pledge his shares to pay for the employees.But the orders and clients were not fake and hence I feel that Satyam can be a very very good takeover by L&T or by Government.Deepak Parekh given the leadership is hinting what I was writing.Government may takeover this no 4 Software export co.........
But I think not all is lost for Satyam as our beloved Bear Mr Shankar Sharma spoke out that Satyam can be Zero.I feel that with good corporate governance Satyam can be brought back ontrack........and that too quicker then anyone can imagine.

Satyam case is not like Lehman br or Bear Stern or Citi or Merill Lych.It has clients and they have not lost money.The margins were poor.Why they were poor needs to be analysed.Either they erred in recruiting more employees then wanted as written by Bhargav and they needs to be trimed down so Satyam can come back to normal and try to increase the margins and do whatever is needed....But am sure this is not a scandal.Something was going wrong somewhere which Raju was not also able to understand.



  1. In last few days i sold my entire portfolio.

    I feel market is going to fall heavily again. we may test lower level 8300-7200-6200.

    pl. take ur own call

  2. at what price do you recommend to buy satyam

  3. Dear Revathy,
    It seems that US cos are still bleeding heavily.Just read that Nortel is going to file bankruptcy.That is also a negative for IT.
    What we need to see now is let the dust settle down.How government deals with Satyam but I think if Satyam comes back again to 12-13 level then it can be a good buy for a good 7-8 rupees appreciation or more in ST.
    How many clients Satyam can retain after government infuse cash in the co.I can say that with total 185 , fortune 500 co clients, there is nothing wrong in the co.The only problem is how there is so much a LESS margin of 3% with Satyam when Infy , TCS and Wipro can achieve over 25% margin!Something is wrong somewhere.Either they were quoting very less rate to cos to have orders or the workforce is going overboard or CEOs and/or MDs,Dirs must be taking some money under the table.
    But with a sales turn over of Rs 2100 cr/qr, which is REAL and that means Rs 8400 cr for whole year.Well that means that Satyam is having a revenue of $2bn for the whole year.Well now looking at the price we have a Mcap of 1368 cr and the sales is 8400 cr means Satyam is available at 1:6 ratio of Mcap to Sales which I think if it goes to 12-13 then the Mcap can come down to around Rs 800 and that can be great time to buy according to me.
    Well, Revathy remember this is a bear market and hence the prices can go below 52 week low i.e.11.50and can touch abysmal low hence always take care that you do not invest heavily in one go.Just buy some token around 12-13 and trade in it like say if it goes up 3-4 rs sell and again try to buy low.
    But remember always hold 100-200 shares of Satyam forever(means 3-4 yrs) because whenever the clouds of uncertainty get over it can touch rs 50 and more any time.At rs 20 and less I think there is nothing more to lose.Like say if one is holding 200 shares even at present price of rs 20, then the risk is just Rs 4000 and even if that entire amt gets wiped off we need not to worry as Rs 4000 is just nothing while seeing at Satyam.I think L&T can takeover the co or even Government can run it for sometime and then find a suitable buyer after the infusion of Cash etc and after co comes back on track.
    I feel Satyam is a great buy at any dips and a word of catuion again.I have proved wrong for the last whole year and hence please do your own research and then buy it......
    BTW , How is Madras?Never been to Madras but I have friends in Madras and when I was in India they keep on calling me to come there but never went there.Maybe in future if I can come there and meet them.

  4. Dear Rajeev,
    I wonder why people get scared so fast. I mean how much can the markets fall from hereon ??? We are already at such low levels in terms of stock prices and I have a feeling that this is the best time to start investing / increasing ones investment.

    Nifty seems to have a very strong support at 2700 and it will be very difficult to break that unless something very bad happens.

    Even the results posted so far are very very good and far above what the stock prices have come down to !!!

  5. Hi Rajeev, I am posting this new item which was on rediff.

    Satyam Fraud - How True!!
    by papai on Jan 17, 2009 06:20 PM

    In the month of July, Upaid Systems had filed a Patent violation and cheating case against Satyam. Ramalinga Raju and some co-associates were prime accused in it. The complainant had charged 1.6 Bn $ as damages from Satyam. That case was supposed to come up for hearing on 7th of January, in Texas.
    1.Mr. Raju resigns on 7 th of January in India. ( At that time it was still 6th evening in America. The Upaid case would have come up next morning)
    2.The Chain of events inside Satyam, after Mr. Raju’s resignation appeared pretty well planned.
    3.It appeared Mr. Ram Mynampati was waiting for the resignation letter and disclosure to go public. And then, he and his team immediately swung into action, without any delays. There were no signs of shock or distress or fear in the faces the team. They were executing things as per the discussion, it appeared. The mails to the employees, the hot line number for employees, the press conference, all seemed to have been placed in advance.
    4.If Ramalinga Raju has cheated the Company, why did Satyam not file a police complaint against Mr. Raju.
    5.Why is there no reaction from PWC ? (As per the inference of Raju’s letter, PWC accounting had malpractises)
    6.The company’s balance sheet looked healthy till September 30th. What has gone wrong so terribly in the last few months that Raju says he does not have any money.
    7.The way things are moving around , I do not see any strains of liquidity in the company’

  6. Dear Rajeev,

    Sorry!! Disturbing you asking same question, can you suggest something about Balasore Alloys Limited?

  7. OM just bear with me.I will write on Balasore Alloy......

  8. I had sold my entire portfolio two month back(12-jan-09).

    Market is another 20% down in last two month.
    If u remeber in jan i have told that Market may test lower level 8300-7700-6200.

    now I am expecting 7700 to be reach. on 7700 one can buy small quantity for short term pullback rally.

    Please take ur own call. i may be wrong horribly