Mahindra Satyam CEO on the road to recovery

Interview: C P Gurnani discusses the rocky path to reviving Satyam's fortunes...

CEO C P Gurnani: Everybody is focused on the future and we know we are doing the right thingsPhoto: Paul Hackett/Bloomberg News

How does a company recover from $1.7bn-worth of financial irregularities on its books? The answer, perhaps unsurprisingly, is slowly.

Two years after scandal rocked Satyam Computer Services, when the company's founder and former chairman B Ramalinga Raju admitted inflating profits, the company is still shaking off the after-effects.

The man charged with reviving Satyam - once India's fourth-largest software and IT services provider - is CP Gurnani, CEO of Satyam's new incarnation Mahindra Satyam. Satyam was renamed as Mahindra Satyam when the Indian IT outsourcer Tech Mahindra, took a majority stake in the company in 2009.

"It is a challenge. I got up at 3am this morning but I enjoy doing it," Gurnani said.

The types of challenges that face Gurnani are returning the company's operating margins to the Indian IT industry average and regaining the 53 customers it lost after the scandal.

Progress on both fronts has been slow. Gurnani said operating margins of eight per cent had been kept down by the need to invest in new technologies such as cloud and smart grids, while the company has only won back about five per cent of its departed customers.

"It's taken longer [to build up the company's margins] because to a large extent my rationale was that I should make some technology investments since the company went through the drama of not making enough technology and infrastructure investment," Gurnani said.

However, the company is making some headway in its battle to reclaim its position at the top table of the Indian software and IT services market.

In September last year it restated accounts dating back to 2002 - clarifying the company's financial position and helping remove any doubts in the minds of potential customers.

And its customer book is swelling once more. In the past year and a half Mahindra Satyam won another 50 clients and experienced a "boom in demand" for services from financial-sector customers in the UK.

"Between September and March the whole regaining process has started. We are winning new customers and the company is back onto a very positive trajectory," Gurnani said.

"We don't look at or talk about the past anymore. Everybody is focused on the future and we know we are doing the right things."

After making a loss of 81.77bn rupees in the financial year to March 2009 and a loss of 1.25bn rupees in the financial year to March 2010, the company's results have edged back into the black, with a profit after tax of 590m rupees for the quarter to December 2010.

The company is also ...

...making progress in dealing with the fallout from the scandal in the US, Mahindra Satyam delisted its American Depositary Receipts from the New York Stock Exchange in October 2010 as it expected to miss a deadline to file financial statements compliant with the US accounting standards. But Gurnani says it is negotiating with the US Securities and Exchange Commission (SEC) to be relisted.

Mahindra Satyam also recently agreed to pay $10m to the SEC, as part of a settlement relating to the accounting fraud perpetrated by the company's former management.

Staffing numbers at the firm are also on the up, following a period where the workforce shrank by more than 10,000 people.

Gurnani said the company headcount now stands at about 30,000 and it is hiring about 8,000 staff.

"We are happy we rightsized because that was how we were able to bring the company back into financial health," Gurnani said.

The company has reached a point where staff turnover is approaching the Indian outsourcing industry average, according to Gurnani, with an attrition rate of 20 per cent.

"We are working hard to continue to give the employees confidence that Mahindra Satyam is the most exciting place to work," he said.

However, while Satyam is expanding its base of operations in India - with new facilities in Chennai, Hyderabad and other locales - Rachael Stormonth, senior vice president at BPO analyst firm NelsonHall, said the scale of Mahindra Satyam's delivery centres outside India did not match that of the top four Indian suppliers.

The future for Mahindra Satyam

With the staffing and customer loss that followed the Raju scandal having passed and the accounting clean-up now out of the way, Gurnani believes Mahindra Satyam is once again in a position to become a major force in the Indian IT market.

"We believe we will be a dominating player in telecom, healthcare, manufacturing, retail and public services," he said.

However, Mahindra Satyam faces a significant challenge if it wants to...

...take on the likes of Wipro and TCS, and regain Satyam's position as one of India's top five IT suppliers.

Wipro, for example, recorded a net income of 13.19 billion rupees for the quarter to December 2010.

Stormonth said: "I don't see how it can overtake," adding that Mahindra Satyam does not have deep enough pockets to expand through acquisition at the same rate as the top-tier suppliers.

Hyderabad is one of the Indian cities where Mahindra Satyam is expanding its operationsPhoto: Nick Heath/silicon.com

"The results for the quarter ended December 2010 did not show the type of uptick that all the top four Indian vendors achieved," she said.

The forthcoming merger between Mahindra Satyam and Tech Mahindra could help to achieve Gurnani's goal of growth.

Gurnani said he is hoping to present the merger proposal to the board around the end of May and that the process could be complete by March 2012.

The merger will create a company with a sizeable customer base - today, both companies have almost 350 customers between them - and that offers a broad portfolio of services.

"Tech Mahindra in a lot of ways was dependent only on telecoms customers," Gurnani said, adding "for Tech Mahindra, it's a unique opportunity to double its revenue".

But even combined, Tech Mahindra and Mahindra Satyam still have gaps in expertise, Stormonth said.

"TechMahindra simply does not have the experience to handle many large accounts, and lacks industry domain expertise outside telecoms," she said.

"Satyam had industry-specific capabilities in manufacturing. Like telecoms, [it is] not the strongest vertical at the moment."

Stormonth highlighted the financial services sector as an area where Mahindra Satyam is "relatively weak", adding "there are some niche areas of IP, but with no clients".

Stormonth also has concerns about what she said is the company's failure to carry out a promised "major investment" in its BPO capabilities, and highlighted the fact that Mahindra Satyam's BPO operation "is still loss-making".

However, in spite of doubts from some industry analysts, Gurnani remains optimistic about the company's prospects.

"We will definitely surpass the number-four spot. I am looking at five years [to achieve that]. Through both organic and inorganic growth we will be a significant player in the market," he said.