Did the profit is siphoned??

Did Satyam Computers promoter-chairman Ramalinga Raju pick the lesser of two crimes when he decided to confess to India’s largest-everorporate fraud of Rs 7,136 crore? That’s a question that had begun to niggle a few people on Wednesday itself, when the contents of his 5-page letter hit the headlines. In the 24 hours since, that question has gained a whole lot more traction.

Here’s why. Raju said that in the second quarter (July-Sept) of 2008, Satyam showed an operating margin of Rs 649 crore (which was 24% of revenue) when it was actually only Rs 61 crore (that’s 3% of revenue).

This, he indicated, was part of a fudging exercise over years to inflate profits - presumably to keep the stock price up and the magic of Satyam alive.

Essentially, what Raju confessed to was creative accounting cash where none was generated and therefore did not exist. But, as he kept emphasising, he did not profit personally from it. Still a crime, but not top of the pops in order of heinousness.

Here’s the catch: 3% margin - which is what Raju said Satyam had actually made - is ridiculously low in an industry. Forget Infosys, which made 33% in the same quarter, all IT firms of similar or even smaller size make between 20% and 30%. There’s no way Satyam, which services 185 Fortune 500 firms, could have such a low profit margin, said every analyst that we spoke to. What’s more, even people in Satyam don’t believe Raju. TOI’s Thursday edition quoted a Satyam staffer saying, “His letter implies that we worked at a margin of 3%. That’s pure unadulterated crap.”

So, if Satyam was operating on a much higher margin, why would Raju choose to say it was actually much lower? Implication is that more money was coming into the company in form of higher profit, but it was being siphoned off.

Raju in Chanchalguda jail

Once in the list of the richest Indians, disgraced founder and former chairman of Satyam Computers B. Ramalinga Raju and his brother B. Rama Raju spent Saturday night in the Chanchalguda jail and slept on the floor along with 26 other prisoners accused of petty crimes like theft.

The Raju brothers, who have been remanded to judicial custody till Jan 23 by a magistrate, will be treated like ordinary undertrials. Prison authorities said there would be no special treatment for them.

The high-profile remand prisoners, involved in a Rs.70 billion fraud in the company, slept on groundsheets and were provided with woollen blankets in the admission barrack of the jail.

They were brought to the jail after 6 p.m. and by that time the supper for prisoners had already been served. When jail authorities asked if they wanted dinner, they said they were not hungry.

The former Satyam boss and his brother will be shown no VIP treatment. There will be no homemade food for them and they will be served jail food thrice a day along with other inmates, said a prison official.

Each will be eligible for 650 gm of rice thrice a day along with 250 gm of vegetable curry and 125 gm of 'daal'. They will also be served tea twice a day.

The Rajus are likely to be shifted to the barracks on Monday after the court hears their bail petition. However, they will be segregated from those accused in violent offences like murders, dacoities and robberies. They are likely to be lodged in separate barracks meant for prisoners facing 'soft' cases like cheating.

The Rajus will be in the company of other high-profile prisoners like Venkateshwara Rao, former chairman of Krushi Bank, K.S. Raju, chairman of Nagarjuna Finance Limited (NFL), and a former director of NFL P.K. Madhav. All three were also accused of swindling huge amounts of money of depositors.

Maytas under scanner

The Satyam scandal has cast an ominous shadow on the Raju family-promoted Maytas Infra and Maytas Properties. Andhra Pradesh Chief Minister Dr Y.S. Rajasekhara Reddy disclosed that an intensive review of the public projects being implemented by Maytas, individually or as part of a consortia, in the state are being studied closely to determine any possible adverse impact including time and cost overruns.

In a mid-day media conference at the state secretariat in Hyderabad on Sunday, Reddy made it abundantly clear that the topmost priority for the state government is the welfare and the future of the 53,000 odd Satyam employees and the impact of the scandal on ongoing and proposed projects in the state as well as the state’s economy.

Reddy admitted that the concern for the state is the capability of the Maytas companies to execute the various irrigation project packages and the ability to take forward the plans to develop major infrastructure projects as the member of different consortia.

There are apprehensions that the contract with the Maytas led consortium will fall through and the Hyderabad Metro Rail will have to look for a fresh partner to take up the Rs 12,132 crore project for the 71 km rail link through the city. This is, if the Maytas-led consortium fails to achieve financial closure for the project by March.Maytas Infra has been awarded other prime contracts such as the Rs 809.62 third package of the Godavari drinking water supply scheme for Hyderabad and the Rs 1500 crore Machilipatnam Deep Water Port.

Further, the chairman of Maytas Infra R.C. Sinha has resigned after Ramalinga Raju came out with his five-page statement. His elder son B. Teja Raju is the vice chairman. Its CEO P.K. Madhav is already under a cloud having come out on bail in a case of cheating depositors of an unrelated company of which he was director earlier.

Maytas Infra, like Satyam, is suspected to have misrepresented its financials. This is why the chief minister has asked Chief Secretary P. Ramakantha Reddy to immediately evaluate the risks for successful and timely completion of projects under execution by Maytas.

However, it is the privately held Maytas Properties, of which younger son Rama Raju is vice chairman, which is perhaps a richer company than Maytas Infra as it has one of the largest land banks for any company in the country – more than 7,000 acres spread across cities and towns in southern India. But, with the probes into Satyam, being extended to other companies in the Raju empire, the real story as to how these companies, formed by reversing the letters, have gained is likely to surface.

New board for Satyam

The government on Sunday named a three-member board, including former Nasscom chief Kiran Karnic and Deepak Parikh, chairman of HDFC, to oversee the functioning of scam-tainted Satyam Computers.

According to Minister of Corporate Affairs Premchand Gupta the board, whose third member will be C. Achuthan, former member of SEBI (Securities and Exchange Board of India), will ensure that Satyam continues to function in the "interest of the company and its shareholders".

The IT bellwether has been hit by a Rs 70 billion fraud perpetrated by its founder B. Ramalinga Raju.

Gupta said the board will meet immediately and other members will be included later. "Having considered all aspects, the government has decided to reconstitute the Satyam board, with experts in different fields," he said.

"Such a board will provide the necessary vision and accountable leadership for the company in the hour of crisis. It would restore credibility, customer confidence and employee morale," Gupta said.

He said the board would function independently and make its "own assessment and take appropriate decisions".

Ramalinga Raju & Ram Raju sent to judicial custody

Satyam's disgraced founder Ramalinga Raju and his brother Rama Raju were sent to judicial custody for 14 days on Saturday while the CFO was picked up for questioning, as the government and regulator SEBI huddled in Delhi to put a new management together to run the IT company.

Raju, who three days ago disclosed a financial fraud in the company running into thousands of crores over several years, and his brother were produced before the 6th Chief Metropolitan Magistrate who remanded them to judicial custody till January 23, their lawyer Bharat Kumar said.

Government to take over management control of Satyam Computer

The Company Law Board on Friday allowed the Government to effectively take over the management control of the beleaguered Satyam Computer Services, following the Rs 7,000-crore financial fraud that shook corporate India.

It also allowed the Government to appoint 10 nominees to function as Directors of the Hyderabad-based company.

The current Directors of Satyam have also been restrained from acting as its Directors. Following the CLB order, the board meeting of Satyam scheduled for Saturday now stands cancelled. The new board is slated to meet in seven days.

Earlier in the day, the Government had moved the CLB to ensure that the operations of the company continued uninterrupted and also to protect the credibility of the Indian corporate sector in general and IT sector, in particular.

The Government’s crackdown on the crisis-ridden company and its move to disband the board also puts a question mark over Satyam’s Q3 results announcement and restatement of Q2 figures, earlier scheduled for January 17; it now needs to be seen if the company would be able to announce these numbers even by January 30.

Briefing the media late in the evening, the Minister for Corporate Affairs, Mr Prem Chand Gupta, said, “We will appoint suitable persons for the post of nominee Directors, at the earliest.”

The Minister also said that the Centre would wait for a report from the Registrar of Companies (Hyderabad), which is probing the financial irregularities. “The RoC has been asked to submit its report by January 14, after which it will be decided whether to refer it to the Serious Fraud Investigation Office,” Mr Gupta added.

Mr B. Ramalinga Raju surrenders

Mr B. Ramalinga Raju, who quit as Chairman of Satyam Computer Services admitting to a Rs 7,136 crore financial fraud, surrendered to the State police on Friday night.

Mr Raju went in a convoy to the Director-General of Police and presented himself. He was to appear before a special team deputed by the Securities and Exchange Board of India (SEBI) on Saturday, which is probing the fraud.