Third quarter results of Satyam Computer are below market expectations and have led to a sharp decline in its share price. Though the company managed to achieve an impressive growth in operating margins on a sequential basis, sequential growth in both bottom line and top line is very subdued and way below the growth rates achieved by other frontline technology companies. Rupee appreciation was the major factor, which affected the company''s performance.

To make it worse, the company has lowered its revenue guidance for the full year in anticipation of further rupee appreciation. However, the company has modestly hiked its revenue guidance in dollar terms.

For the quarter ended 31 December, 2006, consolidated net profit has declined 21.49 per cent to Rs337.23 crore, or Rs5 per share, as compared to Rs429.54 crore, or Rs6.42 per share, for the previous year quarter. Sequentially, consolidated net profit has increased 5.45 per cent from Rs319.81 crore, or Rs4.75 per share, for the previous quarter.

Consolidated revenues for the quarter increased 31.28 per cent to Rs1,661.12 crore from Rs1,265.29 crore for the previous year quarter. On a sequential basis, consolidated revenues went up 3.7 per cent from Rs1,601.88 crore for the previous quarter.

During the previous year quarter, Satyam had booked a one-time income of Rs216.43 crore from sale of its stake in Sify. Adjusted for this amount, net profit has increased 58.24 per cent on a year-on-year basis.

In Dollar terms, revenue growth was 6.7 per cent and profit growth was 8.55 per cent on a sequential basis. These numbers are lower than the growth rates reported by other large companies in the sector.

Operating profits, excluding other income, increased 30.33 per cent over the previous year quarter. Operating margins (EBITDA) as a percentage of net revenues declined to 24.68 per cent from 24.86 per cent for the previous year quarter. On a sequential basis, operating profits increased 13.1 per cent while operating margins improved from 22.63 per cent for the previous quarter. The sequential improvement of more than 200 basis points in operating margins has been attributed to enhanced operational efficiency and reduced cost of delivery.

Staff costs and software development expenses for the quarter increased 31.18 per cent over the previous year quarter while other operating expenses went up by 33.13 per cent.

Other income for the quarter at Rs10.17 crore was substantially lower than Rs32.97 crore (excluding the one time income from Sify stake sale) reported for the previous year quarter. Satyam booked a foreign exchange loss of Rs35.48 crore for the quarter as compared to a profit of Rs2.37 crore for the corresponding period a year ago. Interest on deposits increased to 43.28 crore from Rs30.15 crore.

IT services remained the mainstay, contributing 98.07 per cent of total revenues as compared to 98.87 per cent for the previous year quarter. Contribution to total revenues by the BPO business increased to 1.93 per cent from 1.13 per cent. Revenue growth in the IT services business was 30.22 per cent while BPO revenues increased 124.5 per cent on a year-on-year basis.

Revenues from North America declined modestly to 63.54 per cent of total revenues from 64.45 per cent a year ago. European revenues increased to 19.54 per cent from 19.23 per cent while domestic revenues contributed 4.57 per cent as against 3.75 per cent.

Consulting and enterprise business solutions contributed 42 per cent of revenues during the quarter. The company saw a net employee addition of 2,746 during the quarter while the attrition rate was 15.9 per cent. Satyam opened its third development centre in China besides new development centres in Malaysia and Egypt.