Engineering Specialist Mahindra Satyam Back From the Brink

Rocked last year by a financial scandal dubbed India’s version of Enron, the worst now is over and the healing begun for engineering-services provider Mahindra Satyam, a high-ranking executive says.

Since its founder Remalinga Raju confessed in January 2009 to cooking the books and inflating the company’s assets by some $1.5 billion, the firm, formerly known as Satyam Computer Services Ltd., has had to restate previous financial reports, while recording steep losses for the past two fiscal years.

“Other than Enron, I don’t think anyone came close to the complexity and magnitude of fraud as we have here,” Vineeet Nayyar, appointed Mahindra Satyam chairman late last year, told the Associated Press in September.

The scandal took its toll on the company, as it put a freeze on business with existing clients, chilled prospects for new customers and had workers running for the doors. Since 2009, headcount reportedly has fallen from 45,000 people to 27,000, while the roster of active clients plunged from 500 to 350.

It also forced a planned acquisition by another Mahindra Group operation, Tech Mahindra, which reportedly will pay $580 million in a largely white-knight rescue of Mahindra Satyam, and it has raised the prospects for class-action litigation in the U.S. from unhappy investors, who saw the company de-listed from the New York Stock Exchange on Oct. 14.

But Karthikeyan Natarajan, who heads up Mahindra Satyam’s Integrated Engineering Solutions Practice, says the dust is settling and it’s closer to business as usual for the Hyderabad-based firm.

“I think (all) that’s behind us,” he tells Ward’s in a phone interview from Boston, where he was in town for a client summit. “In the last six months, a lot of structure has been put in place and customers (have been) constantly communicated to about the changes. Customers have been privy to all the details to make sure the company is clean and ready for the next set of activities.”

Bleeding over for India’s Mahindra Satyam, exec says.

Natarajan has been in the U.S. for several weeks, taking part in an October workshop in Detroit geared around the values of global engineering and the secrets to penetrating the Indian market, as well as visiting with key North American customers.

The executive says he made the rounds to more than 30 current clients and met with 20 new prospects during his U.S. swing.

About one-third of Mahindra Satyam’s engineering workforce is focused on automotive, with another third supporting the aerospace industry and the remainder dedicated to consumer products. Roughly 60% of its automotive work is tied to Tier 1 suppliers, with 40% directly supporting OEs, Natarajan says.

“During the first three to six months (of 2010), there was a freeze on new business from existing customers, and new customers were trained to look at your financials and were waiting for that,” he says. “(But) I think between the two of them, we are (back to) our business scheme with our customers.

“We have a portion of our customers in aerospace and automotive who are the best in their industries, and they continue to work with us,” he adds. “So I don’t think (there is) a challenge in maintaining customers.”

Natarajan also believes the worker exodus is over and says the company is well on its way to rebuilding its relationship with employees.

“It was an issue for six to nine months,” he says of worker defections. “(But) as of September-October of last year, we started stabilizing. We’ve done a lot of things in the first six months (of 2010), and we’ve found out how we can reach out to our employees globally.

“We’ve made them feel they are part of the company that is going to transform, (and) I think that has really helped us retain critical employees,” Natarajan adds. “And looking at what other tech companies in India have, we think we’re in line with what we see.”

The merger with Tech Mahindra, focused mainly on the telecom market, isn’t expected to be disruptive either.

“There are hardly three or four customers that overlap,” Natarajan tells Ward’s. “There will be some synergies that Mahindra will leverage…(but) we don’t expect any operational issues.”

About two-thirds of Mahindra Satyam’s automotive business comes from North America, with Germany and France making up the next biggest customer set and India, China and Japan collectively the firm’s third-biggest market.

The company does a variety of work, with core expertise in mechanical and software engineering. Examples include helping a European auto maker with crash analysis and assisting Tier 1 suppliers on both the mechanical designs and software for electric-steering and parking-brake systems.

It also benchmarked electric and electronic architectures used in heavy-duty trucks, creating a roadmap that will allow its client to systematically develop new features for its commercial vehicles over the next few years.

Cost-savings and engineering-capacity shortages no longer are the primary drivers for customers coming to Mahindra Satyam for help, Natarajan says.

“If you look in the last two to three years, and what we see (coming) in the next few years, (it) will be essentially (our) capability,” he says. “We see customers wanting to access more and more the emerging markets.”

Those markets require different product price points, features and configurations – think Tata Nano, Natarajan points out. And customers will need more support to get these products into emerging markets.

“We’ve started seeing that is the flavor,” he says. “It isn’t anymore about cost. Flexible capacity, capability and market are the current three drivers.”

Mahindra Satyam is looking to carve out a niche in the growing electric- and hybrid-electric-vehicle markets. It has formulated a small group of about 20 engineers to specialize in controllers for those vehicles. The firm also is focusing on the link between EV battery management systems and telematics needed to communicate with the driver about when and where to charge the vehicle.

With competition already there or coming from countries such as China, Mexico and Vietnam, Mahindra Satyam has further ambitions to grow the business away from commodity-type engineering and toward more value-added activities.

“We would like to be a design house within the next three to four years,” Natarajan says, meaning his company would be capable of mid-level engineering tasks but not quite reach the ranks of more-established players such as Ricardo plc and IAV GmbH in Europe, which he says would be “too long a stretch.”

Although cautiously awaiting the latest financial results expected to be reported later this month, indications are analysts believe Mahindra Satyam is on the way back.

Typical is the outlook of India’s IIR Group, which reportedly has placed a “hold” rating on the company’s stock, suggesting investors could see a payback within 12 months.

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