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October 22, 1997


Satyam reiterates focus on software

The 300-MW Gowatmi Power Project which was awarded to a group company of Satyam Computers - Satyam Construction - has lead to confusion among investors and analysts regarding the funding of the project. They fear investment by Satyam Computers in the power project will lead to distraction from its main business - software development.

Clarifying the role of Satyam Computers in the project V Srinivas, general manager, finance, said "The board of directors have take a firm decision not to invest funds in any unrelated project. The investment will be only in
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Satyam Computers and its subsidiaries."

The subsidiaries, he said, are all in software related businesses. About the power project, Srinivas said, "It has been spun off into a separate joint-venture with IJM Corporation of Malaysia which will hold the majority stake of 60 per cent in the equity of Rs 2.5 billion. The balance 40 per cent (Rs 1 billion investment) will be held by Satyam Construction."

On how Satyam Construction will raise Rs 1 billion, Srinivas said "The company has a order book of over Rs 2 billion and raising funds will not be a problem."

Commenting on the investment plan in its four fully-owned subsidiaries, Srinivas said the plans and investment in three of these subsidiaries have been fully crystallised.

Satyam Infoway will have a total project cost of Rs 330 million out of which Satyam Computers will put in Rs 80 million as its equity contribution (issued at par), Rs 20 million equity (face value) will be raised through private placement at a premium of Rs 20 per share, aggregating to Rs 60 million. The balance Rs 210 million will be raised through debt from financial institution. The project is expected to go on stream in the next three months.

The other subsidiary, Satyam Renaissance Consultancy, which does business process re-engineering, is being set up at a project cost of Rs 50 million and will be fully equity funded.

Out of this Satyam Computers' contribution will be Rs 47.8 million. This mount includes stock option facility for two of its top management who are running the show - G B Prabhat and Mohan Reddy.

Satyam has already invested Rs 20 million as on date and the balance will come by March 31, 1998. The balance Rs 2,200,000 has been invested by Vijay Mohan. The company has achieved a turnover of Rs 15.8 million last year and is expected to touch the figure of Rs 50 million in the current year.

Satyam Enterprises Solutions, the third subsidiary which is engaged in system integration and solutions, mainly to the telecom sector, will have project cost of Rs 50 million which will also be fully equity funded. Even this company will have a stock-option facility for its CEO C Srinivas Raju.

So far Satyam has invested Rs 20 million in the project which has already started and the clients include BPL Mobile, JMT etc.

The investment plan for its fourth subsidiary, Satyam Spark Solution is yet to be fully crystallised. Satyam has already invested Rs 20 million in the project and is headed by Kalayan Rao the technical expert of the group.

The company has already rolled out its first product 'Search Pad' for searching resources on the Internet. According to Srinivas, "The product's got very good response at the recently held NASCOM meet in Bangalore."

Answering why Satyam Computers want to set up subsidiaries Srinivas said "There are two main reasons for setting up the subsidiaries. First, by giving full charge of new projects it aims to encourage and retain senior managers. Further, giving stock option in Satyam Computers would have been difficult to the senior managers which will be easy through a subsidiary. Second, this will help Satyam Computers to remain focused in its core competency and each subsidiary can enter into various joint venture which was not possible with Satyam Computers."

- Compiled from the Indian media

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