Satyam:Maytas - Matter:Antimatter

Antimatter is an interesting concept in Particle Physics. For the interested, antimatter is related to matter in the same way antiparticle is related to particle. What is of greater interest to me right now is the fact that mixing matter and antimatter will lead to the annihilation of both in the same way that mixing antiparticles and particles does, thus giving rise to high-energy photons (gamma rays) or other particle–antiparticle pairs.

Sometimes these same complex rules are applicable not just in abstract physics, but in corporate governance and in day to day management of modern industries. Just consider the recent Satyam fiasco. Isn't it interesting to note that Satyam when spelt backwards becomes Maytas? India’s 4th largest IT major on one side and a budding infrastructure company on the other side. One deals with bits and bytes and the other deals with brick and mortar. One a well known international brand, the other an almost anonymous entity until the recent merger attempt by the Satyam promoters. Almost a matter antimatter kind of pair in all respects. Most of the comparison parameters you consider will put these two at the opposite ends of the hinge.

So what should you expect when you try to mix these two? Probably, annihilation of everything bad and creation of high energy which catapults the mixture into a grand success. That is what at least Mr. Ramalinga Raju expected. Here it is in his own words – “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. Once Satyam’s problem was solved, it was hoped that Maytas’ payments can be delayed”. Things did not work out as he had planned. He went on to admit “But that was not to be. What followed in the last several days is common knowledge.”

One of the biggest cases of corporate fraud exposed in the history of Indian industries. This happens to be too big a blow for the Indian IT industry which was already at its wits end due to economic recession. How many more days can the new Satyam management hold on to the reigns? Will the employees stick with the firm in the hope of a redemption? How many years will it take for Satyam the brand to regain investor confidence?

Here are some of the startling revelations from Mr. Raju’s letter

1. The balance sheet carries as of September 30, 2008
   
   • Inflated(non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books.
   • An accrued interest of Rs 376 crore which is non-existent.
   • An understated liability of Rs 1,230 crore on account of funds arranged by me.
   • An overstated debtors position of Rs 490 crore (as against Rs 2,651 reflected in the books)
2. For the September quarter(Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore(24% of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore(3% of revenues). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.

The letter goes on with the details of the rest of the fraud. We can only hope that the guilty will be brought to justice. Satyam Computer's auditors, PriceWaterHouse Coopers are yet to comment on the issue. The apex chartered accountants' body ICAI will seek an immediate explanation from PwC.

Hope this will act as warning to other companies to make sure they are doing all the right things and also that they are doing nothing but the right things.

Footnote: Just imagine if the Ambanies take a cue from this incident and decide to listen to their (so far absent) conscience, and come up with a resignation letter listing all the frauds they have done, I am sure the end result will be something as big as Encyclopedia Britannica.