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Satyam to float new subsidiary for BPO foray

Syed Amin Jafri in Hyderabad

Satyam Computer Services Limited has decided to float a separate subsidiary to tap the Business Process Outsourcing segment, according to the company's chairman B Ramalinga Raju.

Briefing newsmen on the company's results for Q4 and FY 2002 in Hyderabad on Wednesday afternoon, Raju said, "after careful evaluation over the past few months, a decision has been made to enter BPO sector through a separate subsidiary company. Strong existing customer relationships, established processes and international brand image will potentially help us reap benefits in the BPO space."

"Initial service offerings will be in the financial back office processes, transaction processing and customer contact help desk services," he said but refused to comment on either the investments to be made in the BPO subsidiary or the size of business that the company expected from this segment.

He also declined to spell out the timeframe for floating the BPO subsidiary.

"The formation of a company may not take much time but it is linked with other internal decisions. At this juncture, we are not in a position to fix timeframe for it. But it (BPO) holds a major opportunity for us," he explained.

Ramalinga Raju recalled that Satyam took an early initiative two years ago in the BPO area to collaboratively develop -- eSCM -- a quality model along with Carnegie Mellon University. Simultaneously, the company moved a significant number of support services into a virtual delivery platform in Satyam. Building on these soft assets, the company has decided to make a foray into BPO.

He said that Satyam launched its operation in China during Q4, thus becoming the first Indian software services company to establish operations in the Chinese mainland.

As part of its aggressive expansion plan in the Asia-Pacific region, Satyam proposed to establish a software development centre, in cooperation with the Shanghai Pudong Software Park, to serve its global clients who operate in China and related markets.

"Once completed, the China software development center will become Satyam's 15th facility of its kind worldwide," he pointed out.

Expressing satisfaction at his company's Chinese initiative, he said, "We have made progress. We are currently working with three clients. We are expecting to work for many multi national companies, which have operations in China, besides the Chinese companies. Initial signs have been very positive but it is premature to say the kind of revenue our Chinese operations may generate. So far in China, our experience has been good and it holds a certain promise in Satyam's scheme of things."

He said that the company has acquired the software services division of Satyam Infoway (Sify) after obtaining the necessary approvals, for a consideration of Rs 332.5 million with effect from January 1, 2002.

Sify would be an Internet-focussed company and it would have Indian or foreign strategic partners. Merrill Lynch has been retained to look at several options very actively in this regard. However, he discounted the report about Reliance eyeing Sify, terming the report as substantially speculative and devoid of facts.

Raju said Satyam has decided to transfer the entire shareholding of the company in Satyam GE Software Services Limited in favour of GE Pacific Limited at a price of four million dollars. The company and GEPL have initiated the process of transfer of shares and the effect of the transaction would be recognised in the financial statements upon consummation of the transfer of shareholding.

Referring to the results of the company for Q4 and FY 2002, he said that the company added 102 clients to the list during the year. Its clientele stood at 263, including 60 Fortune-500 companies. 24 new clients were added during Q4.

Existing customers contributed 86 per cent of the business.

"We have 50-plus alliances and partnerships with best-of-breed solution and technology partners to jointly offer software and consulting services aimed at helping customers re-engineer and re-invent their business to compete successfully in an ever-changing marketplace," he said.

He pointed out that the company had to write-off the investments of Rs 406.51 million made into the marketing subsidiaries-Satyam Europe, Satyam Asia and Satyam Japan - consequent to the decision to merge them with parent company from April 1, 2002. He said the company's other income during the year rose on account of forex rate fluctuations.

Outlining the company's outlook for the quarter ending June 30, 2002, he said the income from software services is expected to be between Rs 4.5 billion and Rs 4.6 billion and the operating margin is likely to be around 31 per cent.

For the fiscal year ending March 31, 2003, income from software services is expected to grow between 18 per cent and 20 per cent in US dollar terms.

Accordingly, income from software services is expected to be between Rs 20.91 billion and Rs 21.26 billion, and the operating margin is likely to be around 32 per cent.

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