The Indian market tanked after "shock and awe" from Satyam Computers Ltd ...??"

R Raju at the end gives out "Satya (m)....as he had to eat his lies....

I AM SHOCKED TO SEE THE PRETENDED "SHOCK AND AWE" SHOWN BY SOME OF THE BEST KNOWN FACES OF THE INDIAN CORPORATE SECTOR"----Is the Balance Sheet "DOCTORING" a new affair in Indian Corporate History??!!

Those who regularly read my columns in this blog, must have seen that I have mentioned about this phenomenon a number of times here.....

I was also equally shocked to see Shankar Sharma speaking on corporate governance!! I still do not understand why media always brings this fellow, everytime???!! Have we forgotten what happened to his First Global during the NDA Regime??!! This is the most "Stupid thing" I have ever seen in my life. But this is India my friend where everything happens....!!?? Moreover, by grace of the "Hand of God" of media, all the blacklisted corporate black sheep were suddenly given the "Seat of God".

It would be better if those Mutual Funds or Industry heads look at their own "Fudged balance Sheets" before commenting on Satyam Computers Ltd. However, what has happened is indeed an indication of the rot which has been plaguing our corporate governance since a long time. With the kind of politicians we have these days, can we expect a very good and transparent corporate administration??!! When the money is being thrown openly in Parliament without happening anything to any MPs or Politicians, is this a stray incident???!!

Anyway, Satyam Computers Ltd computers "Doctored Financials" plunged the Indian Markets into corporate Hell-fire today. This incident is a blow to all those who always ask investors to go for for A-Group Companies in the market---the myth is actually broken. These analysts now have mud on their faces and do not have a place to hide.

However, public memory is short and that of investors (including institutional investors and fund managers) is even shorter. Many companies have done worse than what Satyam did, without protest. After all, everybody knows that Satyam was among the infamous K-10 companies that Ketan Parekh was ramping up furiously in 1999-2001.

During the 2004--2008 equity boom period there had been many attempts to project, Ispat Industries Ltd as mini-SAIL and in a similar fashion lot of juicy stories were eked out in favour of Nagarjuna Fertilizers Ltd, Kilburn Engineering Ltd (this stopped after I mentioned in my report that the company is mired in court cases), Konkan Tyres Ltd, Mefcom Agro Industries Ltd (The Hindu Businessline actually carried a report about the greatness of this company), Ennore Software Ltd (Economic Times came out with juicy report on this company and no one knows where this company, is now??!!), Zyden Gentec Ltd (It was recommended repeatedly by an analyst who have a blog, a Yahoo Group, similar to my blog's name and now writes regularly for Bombay and Gujarat Based Weeklies. The stock was recommended with a price target of Rs.1000 or more by 2006), Abee Info Consumables Ltd (Recommended by the same analyst..), Balaji Distillaries Ltd, etc.

How can we forget Shankar Sharma who spoke about "Radio Active compounding theory:" only a couple of months back, but the markets actually rose up" or Shankar Sharma talking about the First Global's dislikes for banking stocks, while most of the stocks in this sector rose up.......Hence the conclusion----"A person who stays in a glass house should not throw stones at others".

Let us now look at some interesting points on Satyam Computers Ltd, which transpired in the last few hours from Mr.B Ramalinga Raju--my comments are mentioned after each paragraph:

1. MAYTAS INFRA order book touched Rs 11, 200 Cr after securing the Rs.110 Cr worth of broad gauge railway track doubling contract in Tamil Nadu. Hence, Maytas Infra acquistion was not that bad as it made out to be by a section of the media.....Satyam Computers Ltd made a mistake in calculating the price of the deal....In shady deals the price should not be questionable.....

2. Inflated (non-existent) cash and bank balances of Rs.5040 Cr (as against Rs.5361 Cr reflected in the books). So is the scam less than Rs.8, 000 Cr???!! Or is the scam blown out of proportions as the stock fell from the mighty high levels made some months a back to the dismal Rs.40 today??!! Why no one is talking about the massive ORDER BOOK POSITION OF THE COMPANY AND WORLD WIDE CONTRACTS FOR SECURING NEW ORDERS OR REPEAT ORDERS??!!

3. A non-existent accrued interest of mere Rs.376 Cr......which is not even greater than or equal to total revenues in Year. So is this points worth looking, except the issue of corporate governance (which must be condemned)??!!

4. An understated liability of Rs.1, 230 Cr on account of funds arranged by B Ramalinga Raju. So, should we consider this case as the funding done by one of the promoters in his personal capacity to improve the financial status of the company.....??

5. An overstated debtors position of Rs.490 Cr (as against Rs.2651 Cr reflected on the books). Just think whether this point is good or bad and the most important...

6. The gap in the balance sheet has arisen purely on account of inflated profits over several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). See the last line: ".....books of subsidiaries reflecting true performance". So, can we assume that the balance sheet cooking is limited only to "Satyam Computers Ltd" and the subsidiaries are having an "un-doctored balance sheet"?? If this is true then it should be a great news for the shareholders.......

7. The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify a higher level of operations thereby significantly increasing the costs. So with the "cat out of the bag", could we assume that from now onwards the costs would go down, which could be beneficial for the company??

8. Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in the takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten. A candid disclosure by an alleged amateur manipulator.....Have any of the Indian politicians ever stated how they transfer "black money" through the "Hawala" route and invest the same money in the Indian Stock Markets, as the FII money ("Haman main sab nanga hai.....") The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit.

So, could we assume that Mr.Raju and his men was in fact helping the share holders of Satyam Computers by merging Maytas Infra into itself with no real cash deal (as there was no cash on the books or which could be paid later). But then too much froth is bad.....if the deal were of less value, the boat could have sailed properly. But sometimes too much doctoring kills a patient---this is what happened in case of Myatas Infra Ltd.

Hence, the moral of the story: do not keep highly qualified persons and academics on the board, it will not pay--because a practical thing or practical approach is different, from mugging up something for the sake of getting a degree. I have said this a number of times, earlier.......

9. That neither Mr. B Ramalinga Raju, nor the Managing Director (including our spouses) sold any shares in the last eight years - excepting for a small proportion declared and sold for philanthropic purposes. Hence it shows the commitment of the promoter towards his shareholders......

10. For the September quarter(Q2) the company reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenue) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenues). This resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone. So, in this downturn the company was able to eke out 3% operating margin on quarterly basis--not bad. Also, there is very little difference between actual revenues and doctored revenues.

11.That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (statement enclosed only to the members of the board). This implies, all the board members were aware of this scam taking place, including the high profile lady, Dr (Mrs) Mangalam Srinivasan (Director since July 1991; resigned at the end of December 2008. She has been associated with University of California at Berkeley, American University in Washington DC, Harvard University, Northeastern University and Tufts University in Boston insenior positions. As expert in cybernetics, she has worked with US Government Departments, US National Academy of Sciences and US National Science Foundation and the UN. Was Scientific Advisor to the government during Indira Gandhi’s tenure) and some others:

1.Vinod K Dham: Director since 2003; is famous as the ‘Father of the Pentium’ and was also on President BillClinton’s Advisory Commission on Asian Americans and Pacific Islanders.

2. Dr Krishna G Palepu: Director since 2003; is the Ross Graham Walker Professor of Business Administration at the Harvard Business School and Senior Associate Dean, Director of Research. Dr Mendu Rammohan Rao: Dean of Indian School ofBusiness (ISB).

3.TR Prasad: Former cabinet secretary, Government of India.

4. Prof VS Raju: Former director of IIT Delhi. Was part-time member of Telecom Regulatory Authority of India and is now chairman of the Naval Research Board (DRDO).

Hence the statement, "None of the board members, past or present, had any knowledge of the situation in which the company is placed" by Mr.Raju is just an eye wash.

Moreover, I liked/admired the following candid disclosures of Mr.Raju for the benefit of the common public and innocent shareholders. Mr.Raju should now learn how the manage the media----Mr.Raju please take lessons from Mr.Amar Singh and his gang or from Pakistani media (liers and fraud) or Pakistani Politicians (liers and communal).

"Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1. A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt.

This consists of some of the most accomplished leaders of Satyam: Subu D, T.R. Anand, Keshab Panda and Virendra Agarwal, representing business functions, and A S Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the chairman of this Task Force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2. Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.

3. You may have a 'restatement of accounts' prepared by the auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over 20 years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels.

I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation. I am confident they will stand by the company in this hour of crisis.

In light of the above, I fervently appeal to the board to hold together to take some important steps. TR Prasad is well placed to mobilise a support from the government at this crucial time".

What I feel at the end of the day, especially from the above lines is that Mr.Raju genuinely tried to bail out Satyam Computers Ltd from the financial mess created by the accountants & its auditors and wanted to see it rise to the Zenith, but then some things happen and they happen after a lot of smoke. The fault therefore lies more with the Board, its accountants and the auditors rather than with Mr.Raju......

From small accounting jugglery, the things over the years blew out of proportion due to mismanagement of the accounts of Satyam Computers Ltd.

I strongly feel that Satyam Computers Ltd would again regain its lost glory. I feel pity for this thorough gentleman Mr. B Ramalinga Raju, who lost out a battle at the end......I have already mentioned in this blog in the morning that at Rs.30--Rs.32 the stock had great value; after which the stock started to move up and reached Rs.45, before correcting a bit..

THE FALL IN THE STOCK PRICE TODAY WAS MORE DUE TO THE WILD and stinky "FINANCIAL (MEDIA) TERRORISM", RATHER THAN DUE TO REAL CAUSE.

Therefore, apart from bringing in tougher laws for effective corporate governance, the government should do something to rein in these "Media Terrorists"---we have seen enough of these breeds, during the Arushi case, Malegaon case, in Mumbai invasion case and in the latest Satyam Computer Ltd's case........What is the next target of these " Media Terrorists"....