The Satyam story poses a big question over the credibility of auditors in general, as PricewaterhouseCoopers was auditor of the company. The bankers to Satyam included Bank of Baroda, BNP Paribas, ICICI, HDFC, Citi Bank, HSBC.
Anita Gandhi, head-institutional business, Arihant Capital, said, “The Indian technology industry was a very important driver for the country's stock market for nearly a decade. Satyam's fraud is expected to lead a severe blow to the entire industry with investors being more cautious going ahead. This raises serious questions on the entire due diligence process conducted by the auditors of Satyam. What is more surprising is the chairman's confession after his resignation. This means, all along, he did have vested interest in keeping the investors in darkness.”
Raju’s letter to the company board revealed a fraud of unprecedented proportions. He states that Satyam’s balance sheet as on Sep 30, 2008, carries an inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books).
Further, it carries an accrued interest of Rs 376 crore which is non-existent. The books carry an understated liability of Rs 1,230 crore on account of funds arranged by Raju, and an over stated debtors position of Rs 490 crore (as against Rs 2,651 crore in the books). For the second quarter ended Sep 30, 2008, Satyam reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24% of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3% of revenues). This has resulted in artificial cash and bank balances going up by Rs 588 crore in the second quarter alone.
Ankit Sinha, CEO-Spark Advisory, said, “The sentimental impact that was seen across the board was but obvious as the Chairman of Satyam which was one of the reputed company revealed the horrifying internal facts. There are also rumours that the October quarter profit shown by Satyam was inflated. There may not be much impact on the other IT companies and one may see Infosys or TCS go up in next trading sessions. However, if IT companies lower their guidance for the current quarter one may see their stocks plunging in near term.”
Amitabh Chakraborty, President – Equity, Religare, said, “Investors now need to pursue due diligence before investing in a company. Take a careful look at the cash position in the balance sheet. Enquire with the bankers.”
Source: Economic Times