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Sat 11 Jul 2009 04:00 AM

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Wiping the memory

Mahindra Satyam boss Atun Kunwar on rebranding the reputation of India's scandal-hit IT firm.

Wiping the memory
Wiping the memory
Tech Mahindra chairman Anand Mahindra recognised a good deal in the scandal-hit Satyam.
Wiping the memory
Satyam chairman B Ramalingu Raju faces life imprisonment for his $1bn fraud.

Satyam Computer Services gained a reputation as the Enron of India when details of a $1bn fraud emerged in January. Now part of Tech Mahindra, can the firm ever restore its credibility? Chief development officer Atun Kunwar sits down with Arabian Business to talk reputations, rebranding and revenue.

India’s IT industry heaved a collective sigh of relief when Tech Mahindra snapped up the scandal-tainted Satyam Computer Services in April this year. The sale, conducted by auction and rushed through by the Indian government, gave the firm a 31 percent stake and the job of sweeping the country’s largest corporate fraud under the carpet. It was, industry insiders told each other, the close of a bad chapter, one that had sent shockwaves through India’s $70bn-a-year outsourcing market.

For Tech Mahindra, a firm that has had its eye on Satyam for months, it was a chance to buy the backroom giant at the fire-sale price of $353m. Scandal or no scandal, says Atul Kunwar, chief business development officer of the newly-named Mahindra Satyam, his firm knew a deal when it saw one.

“Satyam happened by accident, but we were one of the first off the block to establish contact when the news broke,” he says.

The firm bid Rs58 ($1.16) a share, more than double that offered by other buyers circling the troubled company.

“The company was a victim as much as the customers were. Our angle was we believed Satyam still had a particular worth and we put that across. We said: ‘This is value we can work with,’” Kunwar adds.

By any measure, the outsourcing giant has suffered a spectacular fall from grace. Satyam, which once counted a third of the Fortune 500 firms among its client list, morphed into India’s Enron in January when its chairman and cofounder confessed he had fabricated $1bn worth of cash and assets.

In a four-and-a-half page letter to directors, B Ramalinga Raju revealed he had spun the company’s books for seven years, a scam he described as “like riding a tiger, not knowing when to get off without being eaten”.

The size and scope of the fraud was particularly shocking, as Satyam had been audited by PricewaterhouseCoopers since its listing on the New York Stock exchange in 2001.

For Tech Mahindra, the deal has changed the game. Overnight it has turned into an outsourcing giant with more than 65,000 staff, a roster of blue chip clients and the means to answer analysts who have called on the firm, in which British Telecom holds a 31 percent stake, to diversify beyond telecoms (BT currently accounts for more than 60 percent of its business).

The acquisition also put an end to months of speculation for Satyam clients, which included Nestle, Citibank and Telstra.Still, Kunwar is clear that he has his work cut out to repair Mahindra Satyam’s battered reputation and soothe its skittish customers. Many jumped ship to rival firms when the news broke and, while Kunwar puts the exit rate at less than two percent now, clients are still leaving.

“Customers panicked; they didn’t know if the company would exist in five years,” he explains. “From our point of view, we have nothing to hide so the first thing we did when we got control of the firm in June, is invite our larger customers to come and look at our books.”

The move has convinced some Fortune 50 clients to reverse their decision to change their supplier, he continues.

“They are reinvesting back into Satyam. They can see we’re not fly-by-night people and we’re not asset strippers. We’re here to build a company, to build a business.”

Intriguingly, even at the height of the scandal, Satyam didn’t lose a single Middle Eastern customer, according to Kunwar.

‘The market is different here,” he shrugs, looking slightly perplexed. “They are willing to give you a chance to rectify the situation; it’s not that cut and dried.”

The firm has eight offices in the region, and close to 200 customers, which collectively generate around three percent of its global revenue. Mahindra Satyam has grand plans to double that figure in the next two years, largely by targeting government-backed projects that have been rolled out in a bid to offset the stuttering private sector. Kunwar’s Dubai visit, to reveal the firm’s fresh brand to 75 local clients, is the first step in that process.

“The Middle East is a major grouping for us. There is no reason not to believe that in 18 to 24 months time, we can’t double the revenue,” he claims. “There’s untapped potential and it’s also a region that is showing growth. Governments are spending a lot and that’s a key market for us. The [Dubai] Metro is a good example.”

Globally, Kunwar is under no illusions that winning back Satyam’s lost business will be an uphill battle. At its peak, the company served as the back office for some of the largest banks, manufacturers, healthcare and media companies in the world, and many got their fingers burned when the fraud unravelled. Now, there are lingering fears about Mahindra Satyam’s financial stability, its governance style and its ability to hold on to key staff.

More than 4,000 employees walked in the wake of Raju’s departure. Another 9,000 are on basic pay, a retainer of sorts, while they wait for business to pick up.

The company is working hard to quell market fears. Following a failed open offer to the shareholders of Mahindra Satyam earlier this month — offering Rs58 ($1.16) a share, Tech Mahindra won less than 0.1 percent of the outstanding stock — Tech Mahindra will instead spend the funds on new stock to be sold by Satyam.This will raise the IT company’s stake to “around 44 percent,” Kunwar says, making hostile bids unlikely, and splashing $600m across Mahindra Satyam’s balance sheet.

“We have seven years of books to restate and it won’t happen overnight, but now we have $600m sitting on the balance sheet, we’re already showing stability,” he says.

On to governance, and the company is banking on the weight of the BT brand to allay any rumours of light-touch regulation. The acquisition deal was brokered through BT’s board, so concerned was the telecoms giant about being tarred by association. For added transparency, a chief risk officer has also been appointed.

Kunwar, however, insists that India’s regulatory system was never to blame for Satyam’s ongoing fraud. Rather, the culprit was to be found in the firm’s boardroom.

“There was one of the best auditors in the world working on these accounts,” he points out. “Fundamentally, if you look at their statements, they say there was nothing that was inconsistent, which is what would have alerted them. That’s not to say it shouldn’t have been discovered earlier — but cheques and balances were invented.”

He pauses for a moment. “At the end of the day, there will always be someone beating the system.”

The future looks bright for Mahindra Satyam, if it can only step out from the shadow of India’s biggest corporate fraud. The company’s team is primed to recoup lost ground, selling added services to existing clients and luring new business, and Kunwar is banking on the firm’s business strengths winning out.

“If you really look at the firm, what’s real is the skill sets, the people and the capabilities. What’s not real is the fraud,” he insists.

For all his confidence, however, Kunwar stops short of confirming market talk of a planned merger between Tech Mahindra and Mahindra Satyam. Once two years have lapsed they’ll revisit the idea, he allows, if there are “no more surprises”.

“The liabilities will be known then and we will know how to handle it. If there are any more surprises, we’d rather not bring it on to the balance sheet at Tech Mahindra.”

Kunwar has spent two decades in India’s IT industry and has watched, closer than most, the once-meteoric rise of Satyam’s star. Now, as he busily plans its future, having witnessed its near-collapse, he can spare a thought for its disgraced former chairman, now facing life imprisonment for a fraud worth at least $1bn.

“I’m still impressed with the investments he made,” he muses thoughtfully. ‘He had foresight, investing in engineering services: he made good decisions. Those are now inherent strengths of the company he built — and we have to build from there.”

He stops to gather his papers. “He’s left me customers, capability and a team. All that was missing was technology and money. And we bring that to the table.”

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Employee 11 years ago

Great article, futuristic views...fantastic, will the same ethics be taken to see the talented employees in virtual pool being retained back. Will Mr. Kunwar, increase business to make this happen ?

Kamal 11 years ago

There are so many talented employees - not only technical but also non-techies, who have been very wrongly put in the virtual pool by a bunch of biased senior old satyam hands, people like Mr. Kunwar and other new management should take this seriously to ensure fair practise and create a culture of professionalism. They save good skills then. Mr. Kunwar, CEO and other gentlemen, are you all listening ??