HYDERABAD: Fraud-hit Satyam Computer Services, now renamed Mahindra Satyam, which announced its financial results for FY 2009 and 2010 on Wednesday, said that about 17,000 employees left the company during the two fiscals, reducing the headcount to 27,000 in this fiscal from 44,000 in fiscal 2008-09.
It also said the estimated $1.75 billion (Rs 78 billion) fraud committed by Satyam Computer Services Ltd co-founder B Ramalinga Raju since 2002 turned the balance sheet of India's fourth largest IT bellwether into deep red, as indicated in the restated accounts.
In the new avatar as Mahindra Satyam Ltd, the beleaguered company posted a consolidated net loss of Rs 8,177 crore in fiscal 2008-09 on revenue of Rs.8,813 crore with exceptional items accounting for Rs 7,992 crore.
After Tech Mahindra acquired Satyam in April 2009, the new management strived to reduce the consolidated net loss to Rs 125 crore on revenue of Rs 5,481 crore in fiscal 2009-10, with exceptional items accounting for Rs 417 crore.
In what came to be known as the country's largest corporate fraud, Raju stunned the world January 7, 2009 by admitting to financial irregularities to the tune of $1.5 billion (Rs 70 billion) over a six-year period.
"The fictitious revenue was recorded by creation of false invoices by circumventing the normal revenue recognition cycle," Mahindra Satyam chairman Vineet Nayyar said while restating the accounts for fiscal 2009 and 2010.
The irregularities covered various heads like revenue, interest income, exchange fluctuations, salary costs, other expenses, bank borrowings and interest, and tax payments. The fraudulent entries had an impact of Rs 6,800 crore on the profit and loss account of the acquired company.
The fictitious revenue from April 2002 to September 2008 was Rs 5,353 crore, with 7,500 inflated invoices. A sum of Rs 4,870 crore was translated into fictitious cash and bank balances.
"Similarly, fictitious interest income recorded from 2002 to 2008 was Rs 900 crore and fictitious exchange gain for the same period was Rs 206 crore," Nayyar revealed.
Though cash balance at the end fiscal 2010 is Rs 2179 crore, margins in the same fiscal improved to 8.33 per cent from 3.42 per cent in fiscal 2009. "Net worth improved to Rs 1,800 crore from a negative net worth of Rs 8,080 crore when we took over," Nayyar pointed out.
As per the re-stated accounts, Raju recorded fictitious revenue by creating false invoices and circumventing the normal process by which revenue is entered in the account books. Non-existent cash collections were also shown from customers and forged bank statements prepared to support such claims.
No interest income was shown accrued from bank deposits to the tune of Rs 900 crore from April 2002 to September 2008. "Only fictitious profit was shown based on fictitious revenue that was never earned," Nayyar lamented. During the scam period, though the promoters borrowed Rs 720 crore from banks, there were no loan records.
"The promoters showed fictitious tax payments, took actual bank loans but did not record in the account books. We have also noticed some entries and debits which we are unable to explain as they remain unidentified," Nayyar noted.
As a result, the company had huge negative earnings before interest, taxes, depreciation and amortization (Ebitda) for fiscal 2009. Admitting that the client base declined to 350 in fiscal 2010 from about 500 in fiscal 2009, Nayyar said the company fulfilled an important commitment and kept its promise of transparency and agility by restating the financial accounts after a considerable delay.
The company could add only 44 new clients during the period under review. "It also marks the beginning of a more significant journey of growth and the future. We will inculcate the highest values of corporate governance in shaping the future of this organisation," Nayyar asserted.
After the fraud disclosure, the new company had to deal with significant fallout in the form of customer and employees' attrition. It had to also balance expenses to align with the revenue and reinvent for the future.
The company is expected to declare financial results for the first two quarters of this fiscal (April-June and July-September 2010-11) on November 15.