Indian Government's first private sector bail out

Yes, we are talking about Satyam Computers Ltd. In all probability to protect the interest of 50000 employees of the IT behemoth, the government may have to resort to the populist measure of bailing out the company by infusing liquidity to fulfill its working capital needs. Since L&T and LIC are stakeholders in the company and now with GOI deciding to place nominee directors on board, there is every possibility of an initial bail out from GOI and later on some merger arrangements with L&T infotech or a consortium of interested IT companies. Interesting events can unfold in the days ahead. The only issue bothering white knights now is the concealed liability on satyam's books as well as the legal claims that might be bestowed upon the company post this largest corporate fraud in Indian history.

Raju survives the tiger, offers his shareholders as food instead

Just what exactly is the financial/accounting manipulation of Mr Ramalinga Raju?

Going by his confessional statement to the Board of Satyam Computer, what he has done over the years appears to be rather simple manipulation of revenues and earnings to show a superior performance than what was actually the case.

For this, he resorted to the time-tested practice of raising fictitious bills for services that were never rendered. Such bills will have to either reflect as outstanding dues from customers, which will add up to sundry debtors on the balance sheet.

Or, it has to be shown as realised, in which case, the cash or bank balance should increase correspondingly.

From his statement, it appears that he’s done both, inflate receivables and cash.

For instance, in the September quarter, Satyam inflated revenues by Rs 588 crore all of which went straight to the bottomline. Thus, operating profits were artificially boosted from the actual Rs 61 crore to Rs 649 crore.

About Rs 490 crore of this artificially inflated Rs 588 crore was added to receivables as conceded by Mr Raju himself.

The remaining Rs 98 crore appears to be a part of the Rs 5,040-crore cash hole in the balance sheet.

What beats understanding though is how Mr Raju managed to show a cash/bank balance of Rs 5,361 crore when all Satyam had was Rs 321 crore as of September 30, 2008.

Auditors generally insist on certification by banks of the balances held by them in the company’s account.

Did the auditors fail to do that? Did Mr Raju produce forged certificates? Or did he just manage to find funds for just one day to deposit into the account to get a certificate?

Besides the above, Satyam also showed interest earnings of Rs 376 crore that was fictitious. This is also a common strategy designed to boost earnings performance.

Finally, Mr Raju says he infused funds of Rs 1,230 crore into Satyam which is not reflected in its books as dues to him. In effect, Satyam has understated its liability.

Now, the interesting thing is that all these numbers related only to the second quarter ended September 30.

Mr Raju has said in his statement that he has been doing this for “several years”. So what is the extent of overstatement over the years then? That is the unknown part of the fraud.

The word "Satyam" loses its meaning

satyam fraud isnt suprising..They have been carrying non existent cash balances for several quarters under the head "cash in current account". Just that this whole fudging up process never got noticed by any stakeholder. No enterprise would hold up cash in current account that doesnt even yield any interest income. PWC did not exercise discriminative intellect during its audit process and has plainly relied upon the bankers confirmation of balances..Its not that satyam business was not profitable. No clients have come forward so far to complain about their operational expertise or execution/delivery capabilities. Its just that a portion of the top management has colluded with Raju to siphon funds off balance sheet to group companies which resulted in inflated figures being carried in the books for a long time. The hawala mechanism has worked overtime in this whole scam. What's puzzling is the laxity of PWC as an audit firm in the whole process of auditing satyam's books. Did they simply rely on management assertions without looking deeper into the financial statements for material mistatements?.A cursory glance at the cash flow statements of the company over the past few years would have given them enough room for doubts over the state of affairs. Whichever way u look at it now, PWC has an albatross hanging around its neck which its gonna find very difficult to shed off.

How "Satyam" (Truth) got reversed through Maytas

Satyam's net worth is only 1600 crore adjusting for the inflated profits and the resultant book value works to Rs.25 per share. But whats more appalling is that Satyam was making only 3% at the operating margins level. So this raises a pertinent question as to whether thats the water mark level for the industry as a whole..are all the acounts of IT cos fudged to show or prop up numbers. Is this a real cash cow or a sunrise sector as ballyhooed by the industry experts...have we been buying into a sham story for such a long time? Only time will tell the real saga. But markets can be trusted on their actions, they never lie and it wasnt a coincidence that infosys closed in the green yesterday inspite of the sensex tanking 759 points. Thats a thought worth pondering upon