An End or Just the Beginning..?

What’s the future of Satyam.? Probably no one knows. After the arrest of the Satyam brothers, uncertainty prevails in the minds of its employees. This unfortunate event has changed the way investors look at the ever profitable IT companies. The collapse drained out $27billion of investor wealth. But how was Mr.Raju able to maintain such a big fraud under cover,as an active volcano just about to explode? If prominent sources are to be believed, a brief look at Satyam’s balance sheet would have given many a clue. A very senior executive in a finance role quit just within two months of joining Satyam. The executive is now working with a Mumbai based IT company. According to the CFO of a top tier Indian IT company, “for competitive purposes when I used to analyse their balance sheet, large amount of money in current account did not make any sense. Perhaps it was being siphoned off to other businesses.”


The tax paid or payable is also a good indication of the things to come. Satyam has not paid the advance tax for this quarter. If lesser business was to be cited as the reason, then too it would be caught on the wrong foot as the other three major IT firms had paid their advance tax well in advance. Satyam’s FBT payment in Q3 too was below expectation of taxmen as it paid just Rs 5.5 crore against Rs 25 crore during the same period last fiscal, indicating that the company began to cut cost on fringe benefits extended to its employees. The role of Auditors in this whole case is questionable. With such huge pile of cash, any auditor would have attempted to question the management. Following this, the ICAI has served notice to PWC asking for explanations on the whole saga. Even DSP Merrill Lynch is at its own dilemma whether to proceed with the work entrusted or not. It is reported to have met SEBI officials and told them about large scale accounting irregularities. It told the regulator that it was uncomfortable in handling the mandate.



The question of the hour is what the future beholds for Satyam. Even as Infosys has ordered its HR not to hire Satyam employees, not even the top project managers, people around expect other IT companies to come to its rescue, especially Infosys. The Board was dissolved by the Government and new members have been appointed on its behalf. Even as companies and individuals start lobbying to make it to the new Board, companies such as Lazard Asset Management, LIC, etc hold a considerable stake and are expected to be on the Board. The Government is sure of reaching the roots of the problem. With the arrest of the CFO, things are ought to be clear. The immediate problem for Satyam would be cash. Citi Bank has reportedly frozen 30 accounts belonging to the company. Various banks which have issued credit card to Satyam employees have reduced their credit limits.

What the future beholds for Satyam is really the million dollar question. But with the biggest corporate scam ever in the history of the nation, Satyam can be rightly called India’s Enron. Where Enron deserved its fate, Satyam deserves to be rescued. It was this company that discovered the opportunity in the field of IT. Its fall also sounds a caution for all the corporate firms. I expect many more disclosures of corporate irregularities as even Mr.Murthy described it as “a good signal for other companies”. This brings into question the role of Auditors and the vulnerability of the accounting policies and practices.