What really happened?
Promoters routinely cook the books of companies in India. All cooking of books is always done to help the promoters make money. If we take Raju's letter at face value, then his cooking did not involve this. He cooked the books out just for the heck of it, to report better numbers etc. And then, he claims that he did not sell stock, implying that he did not take advantage of the inflated numbers.
This is unlikely to be true. Raju is much more likely to have siphoned off the money.
A more plausible explanation:
- He was siphoning off money all along. This would also explain the fact that Satyam's margins were historically much lower than other IT companies.
- Over the last two or three years, he siphoned off money on a grand scale to finance his real estate dreams.
- When the real estate ventures went bust, he tried to legitimise the earlier siphoning by taking out the money 'officially', post-facto, which was last month Maytas deal.
The stock market is turning wise. It has a definite opinion on whose books are believable and whose are not. In the hours after Raju's confession became public, DLF fell by 16 per cent yesterday, Unitech by 21 pr cent, many other real-estate and infrastructure stocks fell by 20-25 per cent.
During the same period, Infosys was up 1.6 per cent, TCS down 0.3 per cent, and Wipro was up 0.8 per cent.
This is market's opinion of various balance sheets.
One Bad Apple?
Many worthy people (Infosys' Narayana Murthy and ICICI's KV Kamath, for example) declared that this was an isolated case, one single bad apple etc. The problem with their statements is that how do they know.
There's never just one cockroach in a kitchen. The same motivations and facilitators that were there for Raju are there for every promoter. How can anyone be sure that there aren't many more such cases?
There's a certain amount of book-cooking that every promoter does. This is proportionately more in small-cap companies and goes down (on a relative basis) as companies grow bigger. The mean cooking-to-reality ratio is different in different industries, with different business groups, different parts of the country etc.
Raju's problem is that he went way off the scale for his size of company and his industry. And that happened because in recent years, he had actually become a real estate promoter in the guise of a software promoter. The scale of his lying would be about normal compared to what the real estate industry has cooked up in its so called land-bank valuations etc. However, because of the Maytas-Satyam connection, the real-estate sized fraud showed up in a software company.
Read other articles on Value Research that have referred to the Satyam Affair: