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Satyam: The End Game

Satyam’s case: Now that we know Raju has defrauded the shareholders, on his own admission, it’s time to face facts.

Raju “overstated” cash by 5040 crore, meaning that money does not exist. Interest of 376 cr. on that non-existent cash, also does not exist. Naturally. Satyam needs to pay someone 1,230 cr. because Raju took the money, or so he says. And they’re supposed to get 490 cr. not 2651 cr.

If Satyam were a bank, they would call it an “asset-liability mismatch”. Most likely the US government would buy its bad assets (replace the non-existent cash, for instance) and take over the loans it was never supposed to have.

But Satyam is not a bank. (Hint: Maybe apply now?)

So what happens? There is no money, so how do they pay salaries? Employees are quite likely to look for other jobs – and understandably so. Satyam has 53,000 employees, and if you take the cash – at what, 400 cr. (not accounting for the liability) – that’s about 80,000 per employee, but I assume they will need to pay electricity bills, rent etc., so it won’t even be that much.

But this is a bad job market, and 53,000 resumes aren’t going to be absorbed just like that. Still, customers will be wary; and may withhold payments or even abort contracts.

That would normally be a positive for Infosys, Wipro and TCS, but corp governance of India is under question here. Corporate fraud of this nature does not unwind easy; everyone will be suspicious.

With Raju behind bars soon, and no trust in the top management, and no cash, Satyam is likely to go under. No more acquisition crap – no one will want that. So bankruptcy will be the only way to go. If they owned any land, you can bet your last dollar it was mortgaged to the hilt – or, conveniently transferred to promoters and rented to Satyam through back-dated agreements, like we’ve seen in other cases.

So the impact, for employees, is sad. A company they work for, that they believed was fair, is going under for no fault of theirs; and indeed, no one other than the board, the auditors and the management is liable. In all likelihood the company is bust, and the shares are worth ZERO.

This is horrible for a lot of sectors. Real estate, in Hyderabad for one. The number of payment defaults will be massive, I imagine, plus the rentals should fall dramatically. Consider also that Maytas Infrastructure is run by Raju’s son, and is likely a co-player in the whole deal – and that company was supposed to build the metro and all sorts of infrastructure projects.

Banks – both those working with Satyam (53,000 account monthly credits will be gone), and those that have lent to employees (personal, credit card and home loans). Who? We’ll have to find out. ICICI bank is down 10% as we speak, HDFC 4% and a number of other banks are hurting.

Auditors: The audit of Satyam was down by PriceWaterhouse Coopers. Their report as of 17th August states believed the last results “give a true and fair view of the net profit and other financial information”. It’s now obvious they didn’t even verify cash and bank balances – so were they in the know? Time will tell, but now every company audited by PWC is suspect.

Corp governance in general will be looked at carefully, so foreign money might fly out. I say “might” because there is much more fraud happening in the US and Europe, so one can’t say for sure.

Lastly, the shares are likely to go to zero. This will cause payment issues at brokers who have them on margin or whose clients went long after that sudden 50% upmove.

In all the impact is negative, very negative. Unless there is some serious action taken in the next 24 to 48 hours, our markets are hosed. (I don’t know what we can do, but the powers that are must know)

  • Mohan K.V says:

    >Very nice, comprehensive write up. Let’s see what happens.

  • adonis says:

    >I feel so sad for those 53,000 employees, who will get crushed in this mess up by the management.

  • adonis says:

    >I feel the government should give some financial support, and help in setting up of a brand new board for satyam. If possible, hand it over to experienced players, with a good track record.

  • Anonymous says:

    >hi deepak.. is it a good idea to short satyam at 41 .. ?

  • Nilesh says:

    >if what you are saying comes true. it s going to be horrible 🙁

  • Ex-PwC & Ex-EY says:

    >Cash & Bank balance doesnot mean hard cash in bank!! It means cash, bonds, savings certificates, debentures, etc., (which can be converted without loss of face value). PwC team (of 4-5-10 guys) is too small to audit this big company. It is true with all audit firms. I am myself a CA (and ex-PwC & EY). I know the depth of analysis that these firms do!!! Good day!

  • Deepak Shenoy says:

    >If PwC can’t audit, they shouldn’t audit. We can’t take excuses like “too small to audit”. So say no!

    If they can’t verify bonds+savings certs+ debentures (they are some two pages of listings in an annaul report for heavens sake), and it’s “okay” to miss 5000 cr. then I perhaps I expect too much.

  • Anonymous says:

    >People are worried about what will happen to 53000 employees and some one above is asking is it good to short at 41 rs. Huh… disgusting.

  • Manish says:

    >@ ex-PWC, ex-E&Y – If a team of 5-10 employees is too small to conduct an audit of a firm like Satyam than why don't auditors like Big 4 put more resources, i am sure they must be earning a decent enough fees for their incompetent sevices. In my opinion they are equally at fault in misleading people. This way, all the companies whose financial records are being audited by Big 4 auditors might be fooling poor shareholders.

  • Anonymous says:

    >Raju declares that his immediate leadership team is not aware of these transactions which is a lie. The leadership team knows how many people are engaged in projects and what is the likely profit margin? They may not know the difference between 3% and 8% but not 3 and 33.The investigating agency should probe how many shares these insiders have sold in the open market with in 2-3 years and recover this money from them. May be distribute it to other 53000 members.

  • sathish jo says:

    >This is great analysis. I appreciate your economic and deep knowledge . Keep writing more and you are give more insight to readers. keep it you.hat off..

  • Anonymous says:

    >Here’s another disgusting remark – Their loaned homes would be available for cheap isn’t it. Believe at least 10% of these employees would be having loaned flats. So 500 flats available at cheap prices or should I say real prices as their publicized Cost Price was already bloated. So guys go for it … but be cautious. You may in the same Satyam Boat tomorrow. The future is very scary where people bet on huge loans based on an IT job. The whole set up gets disturbed as not everyone else earns as much as IT guys. We need some social re-balnace here so we do not have chemical engineers writing software code. Let him do it who has his heart into software and not because of the moolah it brings as salary.

    Hey Anonymous friend – Shorting at 41 is not a good idea though. Short in ICICI at present levels. I doubt their clientele. They literally catch you and give you a loan 🙂 even if you say – “Madam I won’t be able to repay your loan :)”

    All rest in peace and hope our top 3 Infy, Wipro, TCS do not have such balnace sheets. With this incidet I have lost all faith in results auditing.


  • AGB says:

    >agree with all the imapct you have mentioned.. what about Mr. Global Hedge fund manager, would he be under pressure to reduce exposure to Indian equities??? it’s a trust issue, isn’t it? it was quite interesting to see who the day’s biggest losers were on Nifty..

    On a different note.. what about your analysis of Aftek.. we can’t be sure of anyone’s book value!!

  • Anonymous says:

    >Time to say kumbaya!
    But hopefully this leads to more oversight. Those PwC accountants need be shot, wonder if they got their degrees in a back alley of Hyderabad 🙂
    Whole BPO model is on shaky ground when your can’t trust your ‘partners’, short short short I say..
    its gonna be a blood bath..

  • Mandar Deodhar says:

    >Very good explanation.

    Horrible to see any public company doing such thing. And getting caught.

  • adonis says:

    Yes, i am worried about those 53000 employees. Because they are going to directly add to the already growing unemployed workforce in India. Of course, there will be many indirect consequences. And the whole corporate fiasco makes us look so fucked up. Not to mention the useless auditing firms.

    But lets hope that something positive comes out of all this.

  • Anonymous says:

    >Hey Deepak,
    What about Aftek now ? confident about its cash position 😉 I guess its time to be very cautious about midcap IT n ilk, many other skeletons may just be ready to tumble out of the cupboard !!
    At the same time you may pick up some jewels at throw away prices as well.

  • Anonymous says:

    >the big4 need to have their comeuppance with this case..their sheer arrogance and insouciance thus far masks their incompetence and gross negligence in uncovering such massive material irregularities!!

    and @adonis — dude, the govt has better stuff to focus on than go around cleaning up a liar’s mess..what abt the moral hazard??!?!

  • Avinash says:


    The SWAT team led by Ram was fully aware of Satyam’s actual revenues and quality of client realtionships.

    It looks like probably around $1 billion in cash has been moved around to benefit these crooks and Raju family during the past 3 months.

    Also name and shame the insiders who sold stock in the past 2 years – Prabhat, Hari, Srinivas, Sriram, Ram, VA, Keshab, Raj Asava, Jose, Joe etc.

  • Hafeez N. says:

    >Hi all,
    I’m a so-called Satyamite from Malaysia.By far,we here is still in a delay to know the latest news about the case from the management.Seems that something is been hiding for all these while.

    I am very aware of all the impact that you told,as i am aware of my job security here.This is such a dooms-day for all of us as the employee and we don’t know what will happen tomorrow and onwards.

    Please pray for us all!Hope there will be a light in the end of the tunnel soon.

  • Raj says:

    >Hi Deepak,

    Pls help me with a couple of questions:

    What could have been the reason for acquiring these companies if Satyam itself had no cash to sustain operations … Are they actually in a better position than Satyam ?

    Though not related to this fiasco, if Satyam is being replaced by Reliance Capital, how exactly is NIFTY or any other index calculated after the replacement ? What changes – nifty market cap, weightage, EPS prospects ?


  • Anonymous says:

    >Your post misses one important point.

    Many outsourcing contracts are long term and stretches from anywhere 3 to 10 years.
    From that perspective, one needs to find out how many projects are in progress.

    As far as i have heard from my friends in Satyam, currently there is no single person in bench. Every employee is into a project.

    I personally think, Satyam is a good bargain buy for anybody with a deep pocket and with a good reputation and brand name.

  • Rajeev says:

    >I saw some of the junior employees of Satyam on TV, hoping for an acquisition or merger. I was surprised to see the ignorance of an employee who said some things happening at management level would not affect him. It is high time they learn some economics too. With no cash to pay even current month salary it is better they think of alternate career options. With other big IT companies having 25%-30% of their staff on bench, they would definitely try to snatch Satyam customers, but not employees.

  • neelabhb says:

    >Deepak – extremely poor comment. you need to do far better !

  • Deepak Shenoy says:

    >Yes Aftek is gone – definitely!

  • Anonymous says:

    >Now the apt punishment would be:

    1. Send promoters and employees ( two persons Chairman and MD can’t do it alone without help from others ) involved in the scam to Jail.

    2. Make the auditors pay an amount equal to the fraud i.e. Rs. 7000 Crores

  • Anonymous says:

    >From Ex-PwC & EY: Dont u guys remember that big four audit firms are training grounds for innocent & confused 21 yr old chaps? The partner who signs the reports earns more than Rs.5 Cr per annum & decides the final topline & bottom line of the client, even before sending the team on the ground. These guys are bastards.

    I have seen many CAs not taking up the audit profession, as there is a sea of difference between what we read & what we actually practice. Its a job of a great frustration for honest chaps (akin to working in a Govt Dept full of corrupt people).

    I also want to highlight a small fact:

    Raju is atleast honest & confessed that he 'even with the best of his efforts (arranging Rs.1200 Cr funds on personal guarantees, etc.'), he couldnot correct his mistakes'. Pay attention to this. He created wealth & provided employment opportunity to 54,000 families (thats a massive number). But finally failed in correcting himself own wrongs, successfully.

    Most probably we might even come to know of a suicide in next 4-5 days.

    There are 10 other powerful guys out there, wearing that ugly mask & covering up their faces (auditors, analysts, rating agencies, Govt watch dogs, etc.). Take them to task.

    Dont tolerate non-sense in your life, irrespective of whether it is small or big.

  • Lalit Kumar Singh says:

    >Hi Ex-PWC,

    I hope a better future for satyam-dependent amidst all crisis.

    Is there any hope remaining for existing share holders in Satyam

  • Anonymous says:

    >We all need to look deeper into this and understand why Satyam was not able to earn good operating margins. There lies the real issue when we look beyond what TV commentators comment on.

    Basically the IT out sourcing business model appear not as robust as we probably think today. There is high competition to get the contracts and so at lower price realizations and also high cost structure associated with way the companies are run – Salaries, High real estate prices/rentals, inflation .. so on. Let us take an example of salaries in India in IT industry. One thing this clearly shows for me is the salaries in India in IT industry are not sustainable. However no one has guts (one one is trained to do that) to address that issue. Most of the IT managers in India trained to recruit people by loading them in to trucks. I work in IT as managers and one of the MNC head quartered in US, it looks as if I am shooting in my own foot. But this is true concern. At some point we will become highly non-competitive and Satyam saga re-enforces my belief.

    If real estate prices look high and even salaries are behind. So this may be another bubble. As we all know these get adjusted in a very painful process.

    I would like to see some effort from the industry to cut their expenses to become healthy and can sustain for next decade or so.

  • Anonymous says:

    >There is a lot of sympathy in the market now for Raju, given what transpired. Satyam is a god company. good people – only needs some cash to iron out issues for a quarter and it should come out on top, after it gets rid of a lot of excesses and resources.

    I cannot believe that PWC can ignore 5000 Cr!

    Anyway, this is the situation with 99% of Indian companies. Can we name ONE transaction that Ambanis did right? But they face no stigma, you expect that from Ambanis. But not from an intellectual like Raju! That is the difference.

    The other IT companies will now fall like a pack of cards, lots of financial juggling going on there too.

  • Anonymous says:

    >Here is one more funny reveleation for you – The Partner who signed the Satyam's statements was earlier with E&Y. He jumped between the companies (at very senior level), a whopping 5 times in 3 years (PwC->E&Y->PwC->E&Y-> PwC). The last stint at E&Y was for just 1 month in 2007. He did this because he was not being made 'Partner'!! This is the integrity of the person.

    I doubt if any thing would happen to him, because PwC was also involved in GTB (Global Trust Bank fraud) several years ago. ICAI is laying eggs on the case till date.

    Are you not keen, why ICAI would not take action on the guilty CA? That's because, a senior Audit Partner of Hyderabad office, him self is a Central Council Member of ICAI 😉

    I doubt how much time these guys spend on client audits (because, if they need to win elections of ICAI, they meet every CA in the city (individially) requesting support in electons).

    Coming to the calibre of employees of these big four audit firms: The firms attract some of the best & the brightest guys, because of the work culture & compensation. The audit processes are driven by custom softwares. Checklists used are exhaustive. Risk assessment guidance is comprehensive. Training is also very good. Only problem is that the guys who sign the accounts (Partners) & the immediate line below that (Directors) have little integrity.

    I hope I have clarified the dilemma of some readers as to how come reputed firm blunder??

  • Anonymous says:


    Could you please enlighten us on why only 61 crores were profits on 2112 crore sales

    it just CANT be true.. pls…your thoughts

  • newbie says:

    >ET reports that Infy will not hire anyone Quitting SATYAM (Harsh isn’t it?)

  • Parag says:

    >Need a help here.

    Can someone explain how corporate bankruptcy works in India?

    In US, company will go forChapter 11. Bond holders will assume the control of the company. Bankruptcy judge will manage the income.

    For a banrupt company, creditors can arrange for credit using ‘debtor in possetion’ status.

    At suitable times, company can emerge out of bankrupcy by paying bond holders agreed upon payback and then launching stock.

    How it will work in India?

    – Parag

  • Anonymous says:

    >I feel sorry for the middleclass people who might have bought Satyam Shares Hoping it will help them to pay for their daughter’s marriage or to buy a house … How sad !

  • Anonymous says:

    >what if the number of employees is also inflated one…imagine the monthly take home salary of those fictious (non existing)employees getting creadited to any personal savings account of any dummy fooling the investors about the scale of operations…

  • Adi says:

    >I've only few things to share about this whole scandel…

    1. There is no need to doubt about satyam's abilities to execute business as nothing so far no client has comeout with bad remark on satyam
    2. So employees can be united and stand behind company as much they can at the tough times of company which have given them life & career beyond most of them would have dreamt of
    3. Regardin fraud, whether it's raju, x or y of the board or oustiders let the investigation its action as its regulated by whoever concerned and take action accordingly
    4. I hope the so called news makers, blog writers, others gossip publishers treat this issue as seperately as cooking account for showing balances in Company and actual company value are quite different. And I hope they do understand that instead of writing a public article like this which could psychology of share holders, employees of satyam(both of them is not small by any means), they can really run to the real investigation agency and help them in getting procecuted lot of other company who could probably running same kinda manipulations at same/different levels.
    5. I sincerely hope India Inc stand behind the business formula of satam which made it where it's today with sincere effort for last 20 years rather than just crying fowl on last few years its wrong doings alone.

    Adi, from Bangalore

  • Anonymous says:

    >Hi Adi,

    Good comments…balanced view (which is so rare now a days!!)


  • Surendra says:

    >We need to remember one Mr. Hussain Godawalla who also hails from Hyderabad. He was arrested for Reverse Hawala fraud to the tune of 35,000 crores.

    CBI will have to explore if Raju siphoned Customer payments from International subsidiaries to Raju's SR & SR enterprises or invested in Satyam as a Foreign Investor.

  • Mutual Fund India says:

    >Lots of middle class people and employs were pissed in the middle of this mess. But hoping satyam will be in good track soon.

  • Financial Planning says:

    >Mahindra Satyam touched an intraday high of Rs 94.65 and an intraday low of Rs 90.80. At 15:50 hrs the share was quoting at Rs 91.65, up Rs 0.25, or 0.27%. There were pending buy orders of 11,312 shares, with no sellers available. It was trading with volumes of 5,684,810 shares.
    So I think Panic over Stayam is over now, and Satyam has started to do well…