Friday, 9 January 2009India's $83 billion IT and outsourcing industry has been dealt a severe blow - and the country's sharemarket rocked - by revelations that one of its biggest companies had been fudging the books for years.
The chairman and co-founder of Satyam Computer Services, Ramalinga Raju, resigned in disgrace after admitting he grossly inflated earnings and assets.
Satyam serves more than a third of US Fortune 500 companies and has operations in 66 countries. It provides back-office IT services for Australian corporate giants Telstra and Qantas. Other clients include some of the world's largest banks, manufacturers, health-care and media companies.
In a letter to the stock exchange Mr Raju described how a how a small accounting discrepancy ballooned into "India's Enron".
"What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew," he wrote. "It was like riding a tiger, not knowing how to get off without being eaten."
Shares in Satyam, which means "truth" in Sanskrit, plunged nearly 80 per cent after Mr Raju's admission, dragging the Bombay sharemarket down with it.
India's benchmark Sensex lost 7 per cent of its value on Tuesday due to Satyam's woes.
Mr Raju acknowledged he had overstated Satyam's September 2008 quarterly revenues by 76 per cent and profits by 97 per cent. The firm's operating margin in the quarter ended September 30 was 3 per cent of revenue, instead of the reported 24 per cent, he said. The company had sales of 21 billion rupees ($607 million), 22 per cent less than the stated figure of 27 billion rupees.
Estimates of earnings and assets had been fabricated for "years", his letter said.
The total value of the fraud, which aimed to keep investors happy and bolster the share price, is estimated to be more than US$1.4 billion ($2 billion).
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Friday, 9 January 2009
The Canberra Times
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