Indian outsourcer Satyam net profit rises 67%

Indian software and services outsourcer, Satyam Computer Services Friday reported strong growth in revenue and profits for the quarter ended December 31, 2005, riding an offshoring boom.

The company has also forecast that it will cross $1 billion in revenue for its fiscal year ending March 31 this year, a gain of between 37.7% and 37.9% over the previous fiscal year. The revenue forecast includes revenue from its overseas and business process outsourcing (BPO) subsidiaries.

For the quarter ended December 31 last year, Satyam posted revenue of $281.8 million up by 37.7% from $204.7 million in the same quarter a year earlier. The company’s net profit grew by 66.8% in the quarter to $57 million from $34 million in the same quarter a year earlier. The profit figure does not include profits from the company’s sale of its stake in a local ISP, Satyam said.

The results are based on U.S. generally accepted accounting principles (GAAP).

Satyam of Hyderabad is India’s fourth largest outsourcer and its largest customer is General Electric of Fairfield, Conn., which accounts currently for about 9.3% of its revenue.

“The growth is coming from a fairly broad based growth trend in (offshoring) that we are seeing in the market,” said Ram Mynampati, president of Satyam’s commercial and healthcare businesses. ” We have also done a very good job of cost management which has contributed to increased profits.”

The company added 35 new clients during the quarter taking the total to 452. North America accounted for 64.4% of revenue, while Europe accounted for 18.5% of revenue.

New service lines such as infrastructure management services and product engineering services for non-IT companies have shown strong revenue growth, Mynampati said. The company’s consulting business accounted for roughly 8% of revenue, and is seen by Satyam as a foot-in-the-door for initiating sales of other services to customers, he added.

New customer additions are coming at higher than average billing rates, and the company has been able to renegotiate some existing contracts for higher rates, according to Mynampati. However the impact of these hikes on average billing rates are likely to be seen only by the next fiscal year, Mynampati said. The pricing environment seems to be getting positive, he added.

The company employs about 30% of its staff outside the country, including at customer sites, and has also hired top executives from outside the country. Indian outsourcing companies including Satyam are also facing an overall increase in salaries for its staff in India, as multinational services companies like IBM and Accenture expand their operations in India. Satyam is managing the increases in salaries by a number of strategies including working on the right mix of experienced staff and campus recruits required for a project, and deploying staff in lower cost countries, Mynampati said.

Although Satyam is competing with large multinationals such as IBM and Accenture, it has won deals even where these companies were incumbent suppliers because it offers value at a lower cost, Mynampati said.

Satyam started an operation in China over a year ago. The company had initially targeted the operations of multinational companies operating in China, but is now finding the local Chinese market also attractive, according to Mynampati. The company announced in November a tie-up with Microsoft to deliver enterprise business applications on Microsoft platforms to Chinese customers, he added.

Satyam is also evaluating setting up a development center in Russia. ” We believe that Russia has a market of its own, and we will make a decision as and when it is appropriate,” Mynampati said.

Satyam’s results wrap up an overall upbeat performance by India’s top outsourcers in the quarter ended December 31, 2005.

India’s largest outsourcer, Tata Consultancy Services of Mumbai reported 26.6% growth in revenue for the quarter. But profits grew in the quarter by a mere 3.6% over the same quarter in the previous year, as the company’s expenditure on salaries and wages more than doubled. Infosys Technologies of Bangalore, India’s second largest outsourcer, announced 32.2% growth in revenue and 27.7% growth in profits for the quarter, as business for new services picked up, while Wipro Ltd of Bangalore reported 33% revenue growth and 25% growth in profits.