Satyam fiasco – Lesson 2

We need to start thinking? God while giving us brains was probably saying “Thou shall think and analyze to see what actually is.” I think practically all of us have been guilty of accepting success at its face value.

I have been also writing about this in my blog. For instance, I have been tracking Future Group’s announcement of new joint ventures, initiatives and especially launches of new retail formats. I have not come across anyone including business newspapers, financial analysts and investrment bankers asking one simple question, “Where are you going to get the money from Mr. Biyani?” Nobody has analyzed what has happened to the previous announcements of joint ventures, initiatives and retail formats. I think we may land up into a problem with the Future Group sometime. I do hope I am wrong because we do not need any more scams in the present state of the world economy. Why don’t we ask questions instead of following these well-known people blindly?
In the past I have also raised the issue of Reliance Power’s IPO?

Our inability to think and analyze is the cause of our problem. For instance, I think if any company tells you that it has over Rs. 5000 crores in C&BB (of course, taking their total turnover intio account), you should be immediately asking why is this company keeping so much money in liquid assets? Either the money should be invested or returned to the shareholders through dividend or share buyback. Now none of the stakeholders including auditors and independent directors asked this question.

According to me, the independent were also not using their God given ability to think. As soon as you hear about “related parties transaction” your flag should immediately go up especially when you talking of big ticket acquisitions. You just cannot approve such transactions in a hurry.

Lastly, I am putting on my thinking cap and saying how can Raju manipulate the books without help from others. There is only one reason for showing artificial higher profit and that is to raise the value of shares and market valuations. Raju had borrowed heavily on his shares and if the value went down, his lenders would ask for more security. Raju could not afford that. Also, by continuously keeping the value of his shares artificially high, he was able to realise a higher value for his shares which he was selling on a regular basis and most probably buying property. I don’t think Raju has told us the complete truth. This could be his only reason for artificially bumping up the profitability as in reality bumping up the profitability actually would decrease the cash flows as one would have to pay Income tax. So I think Raju opted for more taxes so that he could keep valuations of his company high.

The other explanation is that he is lying about bumping up profits and actually siphoned off the money from the company to buy property as I understand he and his family own massive land banks. And the slump in the property prices is whay did him in.

So let see what comes out of the investigation. However, one thing is clear. All of us need to “put on our thinking cap” especially the auditors, business newspapers, FIIs and financial analysts. We should not take success at its face value. I am not asking you to be cynical but rather I am asking you to be analytical. Simply put “Think before you leap.”

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.



I did not realize that IT industry is exempted from tax. As such, it is quite possible that Raju inflated the figures. At first, I thought that with income tax applicable, it would be very foolish of Raju to increase his income as that would actually decrease his cash availability. By increasing his revnues and profit artificially, Raju was able to keep the value of his shares high which he sold to raise money to buy real estate.

The other scenario as mentioned earlier is that he siphoned away the money. I think what one needs to do is track the money, that is, how did he buy all the property. One has to follow the money trail of how the properties were bought.

As far as his claim of working alone on this scam is just unbelievable. His CFO has to know. I think some other people in accounting who were close to him would know. So the first person to investigate is the CFO and the people in the accounts department.

What a mess?


Leave a comment