Satyam Computer Services Limited Q4 2006 Earnings Results Conference Call Transcript (SAY)

Satyam Computer Services Limited (SAY)
Q4 2006 Earnings Results Conference Call
April 21, 2006 9.00 AM

Executives:

Ramalinga Raju, Founder and Chairman
Ram Mynampati, President , Commercial and Healthcare Businesses
Srinivas Vadlamani, Chief Financial Officer
Venkatesh Roddam, Nipuna Services Limited

Analysts:

Rod Bourgeois, Sanford Bernstein
Joe Foresi, Janney Montgomerry Scott
Julio Quinteros, Goldman Sachs
Pratik Gupta, Citigroup
(Druve Maniktalas?), Wachovia Securities
Ashish Thadani, Gilford Securities
Anthony Miller, Arete Research
Mahesh Vaze, Brics Securities
Sandeep Shah, Motilal Oswal
Divya Nagarajan, Motilal Oswal
Bhuvnesh Singh, CSFB
Pramod Gupta, Principal Mutual Fund
Shekhar Singh, ICICI Securities
Mitali Ghosh, DSP Merrill Lynch
Ruchit Mehta, ASK Raymond James
Trideep Bhattacharya, UBS Warburg
Anantha Narayan, Morgan Stanley
Pankaj Kapoor, ABN AMRO
Sudhanshu Rajpal, B&K Securities.

Presentation

Operator

Good evening ladies and gentlemen, I am Pratiba the moderator for this conference. Welcome to the Satyam conference call. Operator instructions. I would now like to hand over to the Satyam management. Thank you and over to Satyam.

Srinivas Vadlamani, Chief Financial Officer

Thank you Pratiba. Good morning and good evening to you all and thank you for joining us to discuss our fourth quarter and full year results. Joining me on this call are Raju and Ram from Satyam and Venkatesh from Nipuna. Before we start the discussion I would like to draw your attention to the fact that during this call we will make certain forward-looking statements regarding our future growth prospects, such statements may involve a number of risks and uncertainties associated with our business. Please refer to our various periodic filings with SEC for a description of such risks. The company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the company. I now handover the session to Raju.

Ramalinga Raju, Founder and Chairman

Thank you, Srinivas. Hello everyone and thank you for joining us on the call today. It is with a great sense of pride and joy that I report Satyam’s entry into the billion dollar club. Achieving this significant landmark has been made possible by the support received from our customers and investors and the commitment of our associates. I would like to place on record my heart felt gratitude to all stake holders who made this possible. I am pleased to report that our performance exceeded the guidance in Q4. Volume growth at 0.8% was a key driver in this quarter. For fiscal 2006 we achieved revenues of INR 4793 crores, and an EPS of INR 30.05, an annual growth rate of 36.1% and 36.2% respectively. This growth is one of the highest in the industry for this fiscal and was achieved against an initial forecast of 26-28% revenue and 20-22% EPS growth. Fiscal 2006 witnessed the gross addition of 120 customers including 12 global and US Fortune 500 corporations providing a strong platform for future growth.

Nipuna, our BPO subsidiary, reported revenues of USD $20 million for the fiscal against a target of USD $18 million. Achievement of cash breakeven by Nipuna in Q4 as per expectations is encouraging and points towards enhanced profitability in financial year 2007. We continue to see increased traction in the BPO space and expect the company to achieve a revenue of USD $36 million in the financial year 2707 representing an annual growth of 80%. In Q4 Satyam made its presence felt in the large-deals category by securing long-term contracts from leading global auto majors. Our integrated solutions offering coupled with global program management capability would make us a strong contender in garnering a higher share of such deals going forward.

The strong demand in the market coupled with the increasing complexity of business solutions has also brought, in its way, higher demand for associates with the right kind of talent and competence. Apart from attractive remuneration in general, we are also introducing restrictive stock unit selectively to enhance our position as an employer of choice. We believe that these steps would bear fruit in the long run, though they tend to be margin dilutive in the short term. We believe that the demand environment will continue to remain buoyant in fiscal 2007 due to increased IT spend by organizations as well as greater acceptance of the global delivery model. To address the availability opportunities we are strengthening our business solutions capability by hiring best-in-class associates from across the world and are making a focused attempt to enhance our competence in new service areas that would be drivers of growth going forward. Inorganic growth as a means to accelerate our competency continues to be a key objective of our long-term growth plan.

Against this backdrop we look forward to a revenue growth of 25.2-27.3%, and an EPS growth of 18-20% as per consolidated Indian GAAP financials while the corresponding revenue and earnings per ADS figure under U.S. GAAP would be 24-26% and 20-22% respectively. I am pleased to report that Ram Mynampati our President, Commercial and Healthcare Businesses, is being inducted into the board as a full time director subject to shareholder approval. The board has proposed a bonus issue of 1:1 and also recommended a final dividend of 250%. The total dividend for the fiscal 2006 stands at 350% including the interim dividend. I now request Srinivas to discuss the financial highlights for Q4 and as well the financial year 2006.

Srinivas Vadlamani

Thank you, Raju. Our detailed financials have been posted on the web and I assume that most of you would have got an opportunity to go through the same. However, I will now share some highlights. Fiscal 2006 has been a year of milestone at Satyam. As Raju mentioned earlier the company crossed an important milestone of a billion dollars of revenue. Net associate addition was 7,347, the highest in our history. Margins for the parent company showed an improvement over FY05, arresting five years of continuous decline. On the inorganic front, Satyam acquired CitiSoft based in the U.K., and Knowledge Dynamics based in Singapore. Nipuna, our BPO subsidiary, reported cash breakeven in Q4 for FY06. The year also saw Satyam unlocking the value of its investment in Sify when the entire holding was divested for a consideration of USD $63 million. Now, coming to Q4, revenue under consolidated Indian GAAP grew 3.8% and EPS grew 5.1% QoverQ. The parent company saw a 6.8% growth in volumes while billing rates increased marginally compared with the previous quarter.

Margins registered an improvement despite a 2.2% rupee appreciation because of a 100 basis point shift in business to offshore and other operational efficiency initiatives taken by the company. Net manpower addition for the parent company was 3,079 including 2,442 freshers(?). We expect the gross manpower addition for FY07 to be between 10,000-12,000. Capex for Q4 was USD $13 million. Total cash outflow on capex for the entire year was USD $53 million. We estimate that capex for FY07 would be around USD $75 million. As Raju mentioned, the company is proposing to introduce a restrictive stock unit scheme selectively with effect from October 2006. The total charge for the units expected to be granted during the current financial year, that is FY07, is estimated to be around 150 crores over the period of the listing and the charge for the current year is estimated to be around 40 crores.

Increments for the year have been finalized at 6% for onsite associates and around 18% for offshore associates, which is higher than last year. To align our compensation cycle to performance management cycle the increment cycle has been changed to July to June period and increments will be effective from July 1st 2006. After factoring in increments and the RFCO charge, we expect consolidated margins for FY07 to be around 100 basis points lower compared to FY06. Our guidance is based on an exchange rate of INR 44.80 to USD $1.00. Coming to U.S. GAAP for FY06, revenue under U.S. GAAP was USD $1.1 billion, a year-on-year growth of 38%. Basic earnings per ADS for the year was USD $1.3, a growth of 37%. It is heartening to note that during FY06 the cost of revenues declined by 100 basis points over FY05 on the back of various operational efficiency initiatives taken by the company. However, in view of increased investments from marketing, the EBIT margins was marginally down by 44 basis points, this is in line with our guidance. Thank you, and now we throw open the session to Q&A.

Questions and Answers - International Center

Operator

Thank you very much sir. At this moment I would like to hand over the floor to April to conduct the Q&A session for participants at the international center. This will be followed by a Q&A session for India. Thank you and over to April.

Operator - April

Thank you very much. Operator instructions. Your first question comes from the line of Rod Bourgeois with Bernstein.

Q - Rod Bourgeois, Sanford Bernstein

Great guys, wanted to ask you a question about the guidance for the next year. It looks like the June quarter guidance implies a lower growth rate than what you have achieved over the last 12 quarters, and I wanted to see if you could tell us some of the dynamics that are making you (inaudible)? And then also what makes you confident of acceleration in the latter part of the year, which is also implied by your full year FY07 guidance?

A - Ram Mynampati

Yeah Rod, good morning, this is Ram Mynampati here. You know when we look at the yearly guidance for the revenue, we have given a guidance for the year of about 25-27%, if you look at the Q1 guidance, you know, our guidance is as a result of number of parameters that we have considered in coming up with a realistic assessment of our guidance. But various other things that have gone into computing the annual guidance include the ramp up plans, so we have for the contracts that we already have on hands, the opportunities that we see in the existing customer base and the new opportunities that we are pursuing and the cycle times involved thereof. Overall we believe that we are operating in an environment that is fairly robust, a fairly buoyant market place, and we are fairly positive about the growth potential that exists in the market. But taking all the factors into consideration to make sure that we share with the investors the realistic assessment of where our business is positioned today, we have come up with a 4% guidance in Q1, but overall the sentiment that we share regarding the market is very positive.

Q - Rod Bourgeois, Sanford Bernstein

OK. Could there be something happening with the ramp up on large contracts that will cause June sequential growth to be lower than that of the rest of the year? And I guess, you know, more specifically, if there is any color commentary you can provide on what you are assuming in sense of large contract wins in the contribution of these large deals in your FY07 financials?

A - Ramalinga Raju

This is Raju here, the larger contracts that are ramping up may be one of factors, but not the only factor, and generally speaking we have been in negotiations in number of instances with regard to large deals, and the environment for establishing relationships on a larger scale today is fairly positive. In that sense which we expect to be one of the significant operator to be participating in larger deals.

A - Ram Mynampati

Just to add to what Raju said, Rod, the contributions from large deals also have been factored into the overall guidance, both for Q1 as well as for the fiscal.

Q - Rod Bourgeois, Sanford Bernstein

Right, and are those deals being won at normal margins?

A - Ram Mynampati

Well, each deal is different in terms of what the customer is looking for from us, in some cases customer is looking for us to take accountability and ownership for services to be delivered, in some cases, you know, it is the incremental business that we need to put in, it is multi-year, multi-engagement type of opportunities, so there is no one uniform color that we can associate with these deals that we are pursuing. They tend to be different in expectations, ramp up, and the type of competencies and the strategies that we need to adopt. In that sense the margins tend to be different for each type of deal, there is nothing uniform that we can say based on our experience that would suggest that they are going to be either margin accretive or margin dilutive at this poin. Our endeavor continues to be to pursue opportunities that are broadly in line with our overall business management strategy, and that is what we are focused on delivering.

Q - Rod Bourgeois, Sanford Bernstein

OK, anyway one final small point on the GE relationship. GE revenue has declines in the quarter, what do you expect from GE in your FY07 outlook? Thanks.

A - Ram Mynampati

You know as most of the investors know, GE has been the largest customer for Satyam, it continues to be the large customer, while we have refrained from making specific comments on any one customer given that GE has been the largest customer, we would like to reiterate the importance and the criticality of GE to Satyam and we will continue to strengthen the relationship with GE and look at the opportunities that are broadly in line with our overall business management philosophy.

Q - Rod Bourgeois, Sanford Bernstein

Right, thank you guys.

Operator - April

Your next question comes from the line of Joseph Foresi with Janney Montgomerry Scott.

Q - Joe Foresi, Janney Montgomerry Scott

Hi, gentlemen, my first question here is around margins. Could you give us a little color on the wage inflation and its impact in the June quarter, and just maybe a little more color on where you see margins headed in 2007. I know that you have already given guidance on that?

A - Srinivas Vadlamani

Yes. This is Srinivas here. As I was mentioning in my initial speech, we are looking at a decline of around 100 basis points, it is on a year-on-year basis. The primary reason for this is of course the increments and the RFCO charge. We have decided to, as Raju was mentioning, we have decided to introduce the restrictive stock unit scheme, because of that we have to take around 40 crores, which is roughly around USD $7.5-8 million for this year. After factoring in that the total year-on-year decline is roughly 100 basis points. Since it is a non-cash charge, for a while, if we remove that impact, then the decline will be on a year-on-year basis around 40 basis points. So, even though we are giving increments which account for roughly 4% of our revenues, we are I think doing a lot of margin management by bringing in various productivity improvement, cost optimization measures during the year and then trying to reduce the impact to the minimum possible, so that is the situation.

Q - Joe Foresi, Janney Montgomerry Scott

And as far as those margin levers are concerned, where do you see maybe the onsite offshore revenue mix moving in 2007 or utilization and pricing?

A - Srinivas Vadlamani

We are not basically talking about all those metrics. One thing I can talk about is the pricing, we have not factored in any improvement in the pricing, we have taken a flattish kind of a scenario when it comes to both offshore and onsite pricing. Number two, on the exchange rate, we have taken INR 44.80 to one dollar, so there is another assumption. So, otherwise, the other parameters like offshore onsite mix, yes while our endeavor is to increase the offshore component to the extent possible, for example, in Q4 we have seen 100 basis points improvement and that is one of the primary drivers for the margin improvement in Q4. That continues to be our endeavor, and also there are various other things like better fixed bid project management and, for example, reducing the cost of delivery by increasing the intake of entry level training program, that is gamut of things we are aiming. Tsum and substance and the quintessence of all these measures is what we are guiding at the margin level of what we are saying less than 100 basis points decline.

Q - Joe Foresi, Janney Montgomerry Scott

Just one last questions, from a human resources perspective, do you plan on, maybe you could just give us a little color on what your current recruitment split is, campus versus laterals, and if you could give us maybe some color on where you see the attrition, I know it went up percentage point this quarter, anything that you guys are doing on the human resources front going into 2007?

A - Srinivas Vadlamani

On the resources front we are definitely at this point in time putting plans to recruit 10,000-12,000 people, and out of this the majority will be entry-level trainee programs, that is our plan at this point in time. Of courses, with maybe, based on what business demands, otherwise that is the plan, to recruit around 10,000-12,000 gross.

Q - Joe Foresi, Janney Montgomerry Scott

And is your plan increasing the amount of campus recruits that you guys normally do?

A - Srinivas Vadlamani

Yes.

Q - Joe Foresi, Janney Montgomerry Scott

OK. Fine, thank you.

A - Srinivas Vadlamani

Welcome.

Operator - April

Your next question comes from the line of Julio Quinteros with Goldman Sachs.

Q - Julio Quinteros, Goldman Sachs

Good morning guys. Can you talk a little bit, Srinivas, about your expectations on a couple of different fronts, I guess I'm wondering as you go through FY07 what your expectations are for utilization levels and for pricing in particular?

A - Srinivas Vadlamani

I think I already mentioned about pricing that our expectation at least in the model while it is our endeavor to increase the pricing to the extent possible, but at least for the model perspective we have not factored in any increases. We have taken a flattish kind of scenario. On the utilization, I mean, as you know we have, we are investing (inaudible) when it comes to loading factor utilization, so that continues to be one of the focus areas going forward as well, but maybe quarter on quarter the loading factor maybe a little, coming down little bit. For example last quarter we added 3,000 entry level trainee programmers. So that may to some extent depress our loading factor maybe in Q1, but that is one of the focus areas and it is our endeavor to ensure that the loading factors are at a very high level.

Q - Julio Quinteros, Goldman Sachs

OK, and then just to be clear, the guidance that you are giving on the margin side, it sounds like there is a new element which is a restrictive stock unit chargeable at about $8 million. In addition to that there is also stock option compensation, stock option compensation is roughly $14 million, is that correct for FY07?

A - Srinivas Vadlamani

Yes, you are right.

Q - Julio Quinteros, Goldman Sachs

OK, the two elements, both of those are factored into this G&A(?) number, so what is the percentage of revenue from sales and marketing or the SG&A line as we look at that for FY07?

A - Srinivas Vadlamani

Sorry, Julio…?

Q - Julio Quinteros, Goldman Sachs

On a percentage of revenue basis, what is your expectation for where the SG&A line goes in FY07?

A - Srinivas Vadlamani

Julio, while I will not be able to give any specific number there, but again our philosophy as we keep telling you really remains the same, that we want to invest in selling and branding and we want to keep a tight control on the G&A which is another overhead. So that philosophy continues into the future as well.

Q - Julio Quinteros, Goldman Sachs

OK. And on the turnover side, other than the current things that you have to do with the new wage increases and the RSU program, what other things are you guys doing to stem some of the increases in the turnover on the employee side?

A - Ramalinga Raju

This is Raju here. One of the biggest initiatives for us is to provide significant increases in the base case as such. We believe that added to that the restrictive stock units should significantly help. Apart from that we are taking a number of initiatives so that we can significantly bring down the attrition levels and that, we believe, is something that we are doing to invest into the future. We have also taken a number of measures to substantially enhance the leadership and provide a much better environment of course.

Q - Julio Quinteros, Goldman Sachs

Great. Thank you.

Operator - April

Your next question comes from the line of Pratik Gupta with Citigroup.

Q - Pratik Gupta, Citigroup

Hi. Actually most of my questions have already been answered, I just want a clarification on the assumption in the guidance on the subsidiary performance. To me, that seems like one of the biggest levers for holding the margins, could you just elaborate on what you assume for Nipuna and the rest please?

A - Srinivas Vadlamani

I will not be able to… basically, as a policy we are giving guidance only at a consolidated level, but I can just share with you color. Yes, I mean, that is one of the important levers and we are expecting all our subsidiaries to perform better in the coming year. Whatever upside that may accrue to us we have already factored into our guidance.

Q - Pratik Gupta, Citigroup

And just one more thing on the tax, could you just tell us what tax rate should we model in for the coming year?

A - Srinivas Vadlamani

There again we assume a flattish kind of a scenario, roughly around anywhere between 12.5-13% on the PBT.

Q - Pratik Gupta, Citigroup

OK. Thank you very much.

Operator - April

Your next question comes from the line of Ed Caso with Wachovia Securities.

Q - (Druve Maniktalas?), Wachovia Securities

Hi, this is (Druve Maniktalas?) for Ed Caso. Most of my questions have been answered, but I was curious as to, can you throw some color on the signing of the new customers? It seems like it has been running a little bit lower than what we have seen in the previous quarters?

A - Ram Mynampati

This is Ram Mynampati here. While we have been averaging roughly about 20-30 customers per quarter, there will always be some variations related to the number of customers that we have been able to completely complete the process of signing master services agreement with. I am not too sure whether there is anything abnormal in terms of the number of 22 versus 28 or 34, and we are very positive about the market and our ability to pursue the opportunities in the market. You know, 22 new customers being added in a quarter itself is a substantial number, and today we have roughly about 475 or so anchor customers that we are fortunate enough to partner with. So I am not sure whether there is anything abnormal or anything to read into that number.

Q - (Druve Maniktalas?), Wachovia Securities

All right, thank you.

Operator - April

You next question comes from the line of Ashish Thadani with Gilford Securities.

Q - Ashish Thadani, Gilford Securities

Good evening. Have you changed the timing of your annual salary increment, and if so, what might be the thinking behind this?

A - Srinivas Vadlamani

Ashish, yes, that is what I was saying. We have changed it to 1st July. Now July to June will be the increment year going forward because we thought that by changing the compensation cycle to this will basically give us lot of comfort at the operational level. Because April to May at that point in time as you know we are all engrossed in working about the next year budgets and guidance and so many things, so for our HR folks to work on increments from 1st April it is not really working out and most of the time they are missing on their SLAs. So to that extent what we thought is if we make it effective from 1st July then it will give them sufficient time to plan the appraisal process and complete everything, get it ready, and then the letters can go on 1st of July to the associates.

Q - Ashish Thadani, Gilford Securities

OK. And just moving onto attrition, it seems that that has picked up as well, is there any significant fallout on attrition from what one has read recently about misrepresentation of credentials by certain employees?

A - Ramalinga Raju

This is not a Satyam specific issue, it is an industry issue. Generally speaking the demand for the skill sets in India has been very high and therefore there has been an associated higher level of attrition. We believe that there is an opportunity for us to significantly reduce the attrition levels in the company, and one of the significant steps that we have now taken is to enhance the remuneration packages so that we become very, very competitive and lay the foundations for building a very strong work force for the future.

Q - Ashish Thadani, Gilford Securities

OK. And then just talking broadly about margins, all of your immediate competitors have guided explicitly or otherwise towards stable operating profitability in FY2007. Based on the ability to invoke multiple profitability levers that you spoke about, at what point in time can Satyam expect to be in such a position as well?

A - Ramalinga Raju

Well, the 100 basis point decline is not a very significant one, and particularly given the fact that we wanted to reciprocate rather well the good services that our associates have been providing and provide a very healthy environment internally for long term growth. Given the fact that we are already going to be achieving significant enhancement in margins after having provided for almost 4% of revenues equivalent increment, it speaks for our ability to manage margins fairly well. We have done that last year. We have performed better than what we have guided for and therefore we are stepping into this year with that confidence.

Q - Ashish Thadani, Gilford Securities

OK, just a clarification, excluding the non-cash items, that drag will go from 100 basis points to 40 basis points, is that right?

A - Srinivas Vadlamani

Yes, Ashish you are right.

Q - Ashish Thadani, Gilford Securities

OK. Thank you very much.

Operator - April

Your next question comes from the line of Anthony Miller with Arete Research.

Q - Anthony Miller, Arete Research

Good evening gentlemen. A couple of questions, firstly on your guidance. Your US GAAP full year guidance is materially lower than the guidance you were giving this time last year for FY06. Yes I think almost without exception, your peers among the Indian Sis, the guidance they have been giving or at least indicating is pretty much in line with the guidance they gave this time last year. So are you seeing FY07 as being somewhat lower opportunity than FY06?

A - Ramalinga Raju

In our opinion it would not be appropriate to compare the last year’s performance on a one-on-one basis with this year’s guided performance. Last year we were quite happy about the fact that we have delivered results both at revenue as well as EPS growth levels that are among the best in the industry. All we could state is that this year’s guidance is based on a model that we built taking many variable things into account and what we believe to be realistic assessment, and we are doing it in an environment where essentially the market condition continue to be good. Our confidence levels are to be able to realize the market opportunities are also being as good.

Q - Anthony Miller, Arete Research

Just to sort of, I guess, ask the question in a different way, are you seeing any material decline in demand from any sections of your customer set or among your prospective customers?

A - Ramalinga Raju

Generally speaking, not much of a change. No.

Q - Anthony Miller, Arete Research

OK. And in terms of competitive landscape, are you seeing any enhanced competition which made you feel that your win rate might be less good than last year?

A - Ramalinga Raju

No, in fact you would find that last quarter our performance was better than the quarter before, but for the fact that the rupee appreciated last quarter, and therefore in percentage terms the growth may have appeared to be lower, but in fact it was better both in volume terms as well as in terms of growth if we have discounted the rupee appreciation. So the point I am trying to make is that we have consistently delivered good results all through not only last four quarters but earlier also, and in that sense we remain positive and there are no concerns at this time but for the fact that when you have a customer base as large as 450 or so, there are many customers who are ramping up. There may be some who are ramping down or whatever, and we have learned over a period of time to rely to a greater degree on what the model is telling us and these are the numbers that the model has thrown out.

Q - Anthony Miller, Arete Research

OK. And my second question, just coming back to Nipuna BPO, you said you turned cash positive in quarter four with what looks like a fairly small lot, I think it was $600,000. You are implying in your guidance that you should turn profitable for Nipuna in FY07. Can you give any further clarification on that, and whether you expect profitability to increase in a sustained fashion or whether there maybe the occasional hiccup as you take on new contracts during the year?

A - Venkatesh Roddam

Hi, this is Venkatesh here. I think the last two quarters or so, the trend has been exceptionally positive based on which we have given the guidance, and the intention of this point is that we will continue to be a profitable company during the course of this year. That is the outlook we have at this point in time.

Q - Anthony Miller, Arete Research

Thank you very much.

Operator - April

At this moment, there are no further questions from participants outside of India. I would like to hand over the proceedings back to the Indian moderator.

Questions and Answers – WebEx India

Operator

Thank you very much, April. We will now begin the Q&A interactive session for participants connected to WebEx India. Operator instructions. First in line we have Mr. Mahesh Vaze from BRIC Securities.

Q - Mahesh Vaze, BRIC Securities

I just wanted to understand the margin movement. See, you have talked of 100 basis decline for the year, now the Q1 we are having decline because of the celebratory expenses. As an reply to an earlier question you talked of about 400bps going because of salary hike, which will happen in Q2, so there should be some sort of sequential decline, and Q3 is when the RSU charges will come, so there could be another sequential decline. So what are the levers which will work the other way round? Am I correct in assuming that Q2 over Q1 would be a sequential decline in margins? And Q3 over Q2 again because of the RSU charges, there would be a sequential decline in margins?

A - Srinivas Vadlamani

Mahesh, this is Srinivas here. While we will not be able to at this point in time give guidance for all the four quarters, quarter on quarter basis, I think keeping in view whatever model we have built and after considering various levers which I already articulated in this call earlier, we are very confident of achieving this 100 basis point decline, that also if you factor in, if you remove this non-cash charge of 66bps because of this 40 crores RSU hit, I think the decline is only going to be around 34 basis points, which is more or less in line with the current year. So there are various levers and I think we have already proved it last year: 300, as you know we gave increments of 300bps last year and we ended the year with just 36bps decline. So there are levers available to us. As I was mentioning, maybe just at the cost of repetition, things like, we are expecting our subsidiary performance to improve. We are basically expecting our cost of delivery to come down because of more and more entry level trainee programmers joining us and also we want to keep the SG&A under control. Apart from this, other things like better fixed bid project monitoring. So a gamut of things are there. We have factored in all that and then we are confident about the guidance we have given.

Q - Mahesh Vaze, BRIC Securities

Sir, the RSU will kick in from 1st of October, right?

A - Srinivas Vadlamani

You are right.

Q - Mahesh Vaze, BRIC Securities

OK. And would there be any additional charge in US GAAP because of this SFS?

A - Srinivas Vadlamani

Yes, we will have. Under the US GAAP the charge will be higher, I mean, if you look at last year that is FY06 US GAAP numbers, we reported a pro forma EPS, there we have taken a hit of around 23 million or so towards under FAS 123. The corresponding charge for FY07 is roughly around 14 million US dollars. The charge because of the RSU is another additional 8, so total 22. So under US GAAP the charge is going to be $22, and under Indian GAAP the charge is going to be only 8 million dollars.

Q - Mahesh Vaze, BRIC Securities

Sir, this RSU where would it get classified, will it come in operating expenses?

A - Srinivas Vadlamani

In US GAAP, yes. In both the GAAPs it will be above the EBITDA line.

Q - Mahesh Vaze, BRIC Securities

OK fine. And Nipuna side we saw almost 50% sequential growth this quarter, so just wanted to understand what happened, it is a very strong performance?

A - Venkatesh Roddam

Very specifically, as I mentioned in answer to an earlier question as well, I think quarter on quarter we are beginning to see positive movement and traction on the business front. And it is expected that that kind of momentum continues during the course of the year.

Q - Mahesh Vaze, BRIC Securities

Yeah. But sir a 50% kind of jump sequentially is a bit unusual, so meaning, this time around did we get some new clients going, what exactly happened this time is what I wanted to understand?

A - Venkatesh Roddam

This time around it is predominantly driven around a couple of deals that we have concluded on the animation front, which actually we started booking revenues for that from the last quarter of last year onwards. So the jump was predominantly on account of that.

Q - Mahesh Vaze, BRIC Securities

Yeah, I am done.

Operator

Thank you very much sir. Next question comes from the line of Mr. Amit Khurana with ILFS. Please go ahead sir.

Q - Amit Khurana, ILFS

Hi, thank you very much. Srinivas, can you just throw some color, what went into finalizing an 18% offshore salary hike, was it more because we are sort of, you know, being a time lag of one quarter or is there something more to it. Also if you can throw light on as to how it works across various levels. Is it more at certain levels and is it less at certain levels?

A - Srinivas Vadlamani

Yes, these whatever percentages we are talking of they are the company average, and depending, I mean, this definitely varies based on the level and based on the performance, and we have a performance appraisal methodology where we rate all our associates. So based on that rating the increments will be decided. So to that extent there maybe associates who maybe getting much higher than the 18%, the range could be as low as 10% to as high as 40-50%.

Q - Amit Khurana, ILFS

And any particular reason it seems to be comparatively higher compared to your peer group? Is it because of the time lag or just that you are feeling the pressure of attrition more so?

A - Srinivas Vadlamani

I think Raju answered this on an earlier question. So basically we thought that we need to reward the associates, and yeah, one of the drivers is the high attrition we have, and also factoring in the cost of attrition, we thought on balance giving higher than normal increment this year will be beneficial to the company at the end of the day. So we thought that we take this, and so to that extent we are internally thinking it is more an investment rather than an expense.

Q - Amit Khurana, ILFS

OK. Sir, just one last question on the expensing that we do in year subsequent to 2007, does that amount move up any clarity that you can offer us related to that?

A - Srinivas Vadlamani

You mean, stock option expenses?

Q - Amit Khurana, ILFS

Yes.

A - Srinivas Vadlamani

Yeah, I mean, this year again there are differences between the GAAP. Under Indian GAAP the charge is 40 crores this year and it will go up to around 70 to 75 crores next year, and then after that it will steeply come down. So maybe 10 crores or so, and then by the fourth year it will completely go away.

Q - Amit Khurana, ILFS

OK, all right. Fair enough. Thank you very much.

Operator

Thank you very much sir. Next question comes from the line of Mr. Sandeep Shah with Motilal Oswal. Mr. Shah? Are you on speaker phone sir? Please go ahead sir.

Q - Sandeep Shah, Motilal Oswal

If we split the sales growth for this quarter, most of the growth has been driven by the growth in the domestic business, maybe export business has just grew by 2%, what is the reason behind that? Hello?

A - Srinivas Vadlamani

Hello yes?

Q - Sandeep Shah, Motilal Oswal

I am asking why the export growth during this quarter is just 2% when most of the growth has been driven by the domestic growth?

A - Srinivas Vadlamani

Basically the domestic includes the offshore related business, which we do for the multinational corporations, that technically will be called as domestic but that basically we categorize as offshore revenues.

Q - Sandeep Shah, Motilal Oswal

OK. And sir you said that the Q1 profit growth will be lower than the sales growth on account of the celebration charges, can you just give us the quantum of that?

A - Srinivas Vadlamani

No, no. I don’t think this is because of the celebration charges. That is maybe one of the things, that is smallest of the things. I think the bigger reason for the decline is the impact of salaries for the 3,000 odd ELTPs whom we have taken on board in Q4. As they have joined throughout the quarter, throughout Q4, that salary has not been fully reflected in Q4 salaries. So most of it is getting reflected in this quarter. So, Q1 will take the full hit. So that is the primary reason for whatever dilution we are seeing at the margin front.

Q - Sandeep Shah, Motilal Oswal

OK.

Q - Divya Nagarajan, Motilal Oswal

Hi, this is Divya. What is the head count in Nipuna as of now, and what are the plans for ramp up there?

A - Venkatesh Roddam

We closed the year at 1,765, the head count. And, I mean, I think business is going to drive the growth in terms of head count during the course of the year. So at this point in time we would leave that open, but the number as of 31st March is 1765.

Q - Divya Nagarajan, Motilal Oswal

Right. Some of the large contracts that you have bagged during the year, when are these scheduled to start, if you could give us some idea on that?

A - Ram Mynampati

Well, every contract is different, and so is the ramp up schedule for every contract. We certainly are hopeful that the ramp up would start in Q1 itself, but it is fairly scattered schedule, depending on the type of the customer and the type of the engagement we expect most of that would happen in the first two quarters, but it is very difficult to pinpoint any timetable of when the ramp up will happen.

Q - Divya Nagarajan, Motilal Oswal

Right. What is the capex plan for the year please?

A - Srinivas Vadlamani

Our capex plan for the next year is $75 million.

Q - Divya Nagarajan, Motilal Oswal

Thanks so much.

Operator

Can we move to the next question sir? Next in line we have Mr. Bhuvnesh Singh from CSFB.

Q - Bhuvnesh Singh, CSFB

Hi sir. On revenue growth, I am noticing that last two quarters suddenly we had seen volume growth coming off from the previous quarters, and again next quarter you are not guiding to a strong volume growth, what is the reason behind that?

A - Ram Mynampati

Bhuvnesh, this is Ram Mynampati here. Volume growth at least from what we see is fairly robust. This quarter also, that is Q4 we have reported a fairly decent volume growth, that is, 6.8% volume growth, and in the previous quarters we may have reported 8% or 9% whatever, but mid to high single digit volume growth in a quarter is fairly respectable one, there is nothing abnormal. We are fairly confident of volume growth driving the revenue growth opportunities moving forward, nothing abnormal in our perspective.

Q - Bhuvnesh Singh, CSFB

Sir, just one clarification on that, when you mean robust revenue growth for next four quarter going forward, would a 5-7% quarter on quarter volume growth classify as robust? Or do you mean much stronger growth than that?

A - Ram Mynampati

Well again, I think all we have to do is establish the frame of reference as the guidance that we have given. We said that in Q1 our guidance is 3.5-4% on top line and for the year we said the guidance is 25.2 to 27.3. We are fairly confident of delivering to those number and there are number of ways of getting to those numbers, you know, some is due to volume growth, some is due to onsite-offshore shift, bunch of things, but we are fairly confident looking at the business realities that we are dealing with, we are very confident of delivering to the guidance that we have given.

Q - Bhuvnesh Singh, CSFB

Fine sir. Sir, one thing on large deals, like one of your competitor, one of your peer says that they don’t want to sign large deals because they don’t find that the margins there are good, and they think that the business is so strong that revenue growth would not suffer. What is our take on that, are we willing to sign a number of large deals or do we think that we can avoid them and yet maintain good growth?

A - Ram Mynampati

Well, we certainly would not like to comment on anything that competitors say. We have our hands full on managing our business. Clearly, the business is business regardless of whether it is coming in the shape of large deal or a small deal, to that end the business parameters that we use to evaluate how attractive a business is to us remain broadly the same. In some cases, it is a much a longer commitment, it is a much larger commitment in terms of dollar value of the contract. To the extent that we are confident of delivering the right margins to the investors and to the business, I don’t think it really matters whether it is a large deal or a small deal, in that sense we are not averse to pursuing opportunities that are attractive to us. The fact that a large deal is termed as such is incidental in the way we look at business.

Q - Bhuvnesh Singh, CSFB

Sir, when you make your three-year or five-year plan, what proportion of revenues do you think would come from large deals three years forward or five years forward, would you have… Can you give any idea on that?

A - Ram Mynampati

I am afraid we don’t have any crystal ball to give those kind of numbers. First of all the fact that we are pursuing opportunities that are termed as large deals, you know, it has been only few quarters old phenomenon. I don’t think we have enough history to project out. What we are seeing though is that large deals are a fact of life that we have to deal with. Increasingly customers are looking to challenging companies like Satyam to take more accountability more responsibility to deliver a business centric value to them, and they are willing to offer commitment of a certain size of business and commitment of a relationship of a certain duration, and in return obviously they would look for organizations that are innovative and creative to deliver the value and make money for themselves in the process. So the business mix as we see today would certainly consist of large deals. What percentage of that business mix would come from large deals today and how will that move next year is very difficult for us to predict those numbers.

Q - Bhuvnesh Singh, CSFB

One last small question to Mr. Srinivas. Sir, this quarter our SG&A expense went up slightly, any particular reason behind that?

A - Srinivas Vadlamani

No specific reason. As you can make out from the schedule, the travel cost is the primary contributor and the travel went up by roughly around 18-20 crores or so. So that is the primary reason if at all. Otherwise, there is no specific reason.

Q - Bhuvnesh Singh, CSFB

Do you think that this cost will come off and SG&A will go back to slightly lower levels going forward or will it stay at the current levels?

A - Srinivas Vadlamani

Yeah, that is one thing, while we are not going to talk about specific numbers , but our broad philosophy is to ensure that SG&A remains under control, and more importantly the G&A part while we will continue to invest in selling part. So, I mean, that is all I can say about it.

Q - Bhuvnesh Singh, CSFB

Thanks a lot sir, and best of luck for your future.

A - Srinivas Vadlamani

Thank you.

Operator

Thank you very much sir. Our next question comes from the line of Mr. Pramod Gupta with Principal Asset.

Q - Pramod Gupta, Principal Asset

Good evening. Just wanted to understand why has the receivable days increased quite a bit in this quarter, and also I want to know what is the gross addition for the full year this year for Satyam?

A - Srinivas Vadlamani

The receivable days going up is just a, I call it as just a quarterly aberration. You may not have to read too much into it. We have made a lot of progress, earlier it used to be around 110 days or so, we brought it down and this keeps varying quarter on quarter. Other than that, there is not much really into it. And in terms of the gross addition for this year, I think it should be roughly around 12000 or something like that. So I don’t readily have that data.

Q - Pramod Gupta, Principal Asset

So when you are saying that next year you are planning to hire 11000 kind of gross add, do I assume that your internal attrition rates estimate same as this year or do you think they will be different?

A - Srinivas Vadlamani

I think conservatively we can take that number at the current levels.

Q - Pramod Gupta, Principal Asset

OK. Thanks a lot and all the best.

Operator

Thank you very much sir. Our next question comes from the line of Mr. Shekhar Singh
with ICICI Securities.

Q - Shekhar Singh, ICICI Securities

Hi sir, just wanted to know like this 3,079 employees, which have been added, do they include the BPO staff or these are…

A - Srinivas Vadlamani

No, no, this 3,079 is only for standalone.

Q - Shekhar Singh, ICICI Securities

And secondly, the 10,000 employees which you are planning add, 10,000 plus employees which you are planning to add in 2007…

A - Srinivas Vadlamani

That is also for standalone.

Q - Shekhar Singh, ICICI Securities

OK. Currently sir, this is like OK, just looking at the results it seems as if your enterprise solutions, there seems to be some implementation project which has come to an end during the quarter because that seems to like be slightly slow growing, and more importantly if I just match it along with the reduction in the onsite staff, it seems to suggest an implementation project which has come to an end, which might have resulted in some slightly slower growth this quarter. Is it something of that sort or is it something else because of which the volume growth has been slightly on the weaker side?

A - Ram Mynampati

No, I think we continue to be as strong in the enterprise business solutions as we have been. If you look at our growth rates this quarter, enterprise business solutions grew roughly at about the same rate as the rest of the organization, maybe marginally higher. It has been the trend in general enterprise business solutions is at least growing at the organization growth rate and in some cases faster. We are fairly positive about the business potential in enterprise business solutions and the growth potential thereof in other areas of business for us. There is nothing abnormal. You know, while the projects coming to closure would happen in any quarter and that is not restricted only to enterprise business solutions. I don’t think there is any specific noticeable trend in enterprise business solutions that would warrant our attention.

A - Ramalinga Raju

There is no single customer which by itself can explain the guidance numbers because we are currently dealing with fairly sizable amount of customers. There maybe some few which together may influence it and we cannot at this time comment on the same. But generally speaking, all these things have been factored in.

Q - Shekhar Singh, ICICI Securities

Sir, the only issue over there then comes like if your project starts are on a stronger pace, or they are happening at a faster pace, then your onsite effort mix should not have come down, the fact that it has come down by close to 180 basis points in the current quarter, is it a sign of some sort of weakness in terms of new project signing up?

A - Ramalinga Raju

Well, in fact our endeavor continues to be to do as much as possible from offshore as we can, you know, while there is certainly a higher contribution to revenue the more we do from onsite, our model suggests that we are better off doing as much...

Q - Shekhar Singh, ICICI Securities

Exactly, exactly.

A - Ramalinga Raju

And is what we are attempting to do, it does not mean that…

Q - Shekhar Singh, ICICI Securities

What happens is, in a good demand environment the project start itself will be so strong that your onsite effort mix will not be reduced even if you try to move your.., so basically it will start reducing only when your project starts are lower as compared to the business that you are shifting offshore.

A - Ramalinga Raju

On the contrary, many of the customers are today looking at us to demonstrate the earlier experiences of delivering greater percentage of services from offshore sooner, and in that sense it need not mean that the project has come to closure, it might also mean that we have been able to move the project offshore earlier than otherwise would have been possible in other instances. So I am not so sure whether these are all definitely black and white, I think we just have to deal with the business and we are not seeing anything alarming in the business. We continue to remain positive about enterprise business solutions in particular, we are very upbeat about the business potential there.

Q - Shekhar Singh, ICICI Securities

Sir lastly, I just wanted to know like, are there any upfront costs related to any of the large contracts which you are building in your Q1 guidance?

A - Srinivas Vadlamani

Not really. As I was mentioning the primary reason is the salary impact on the 3,000 people whom we added in Q4.

Q - Shekhar Singh, ICICI Securities

OK. Sir the only thing which basically like is worrying me is the fact that 40% of your revenue is coming from enterprise solutions and in an environment when discretionary spend is expected to go up and IT budgets are expanding, your growth rate should have been higher as compared to companies which are having 15 or 20% of their revenues coming from enterprise solutions. So basically taking those factors into account your guidance looks to be extremely conservative that was the only worrying factor.

A - Ramalinga Raju

Well, in fact if you look at FY06 number our growth rate has been one of the highest in the industry, so you know that kind of reinforces the same point that you are raising, but if you look at our guidance, what we want to guide is the number that we are confident of delivering, and as we evaluate the business climate today, we are comfortable in delivering to the guidance that we have given. It does not mean that we are any less positive about the environment or any less confident about our opportunities. The guidance number that we have given is a reflection of the business how we see today.

Q - Shekhar Singh, ICICI Securities

OK sir, thanks a lot sir.

Operator

Thank you very much sir. Our next question comes from the line of Ms. Mitali Ghosh
with DSP Merrill Lynch.

Q - Mitali Ghosh, Merrill Lynch

Good evening to the management team and congratulations on a great FY06. On the employee side is it possible for you to share with us what is the kind of mix you have in lets say less than 3 years experience level and more than 3 years experience level, and how you have seen that changing, what you might be targeting there?

A - Srinivas Vadlamani

Mitali, I think we will not be able to share so many details, at least we keep mentioning that our initiative, our endeavor is to increase the proportion of entry level trainee programmers to the overall mix and thereby broaden the associate pyramid and reduce the average cost of delivery. I think under that broad initiative we keep making decisions, appropriate decisions, but then all these things as you know are primarily driven by what business demands. So it is not cast in iron, while this is our goal and this is our roadmap, but we continue to make course corrections based on what business demands.

Q - Mitali Ghosh, Merrill Lynch

Sure. Would it be possible to at least share the historic numbers and the actual numbers, I mean, I can understand you might not want to share the target…

A - Srinivas Vadlamani

Right now I don’t have that information with me level wise or whatever.

Q - Mitali Ghosh, Merrill Lynch

OK, I can just take that later. And the second thing is on the attrition side, you know, if you could give some color in terms of how that would breakdown across whatever categories you would like to break that into?

A - Srinivas Vadlamani

Which one Mitali?

Q - Mitali Ghosh, Merrill Lynch

On the employee attrition, if one could get some color on how that breaks up across different categories of employees whichever way you would like to classify that?

A - Srinivas Vadlamani

Even those Mitali, we are basically, I think as a policy we are giving at a company level. I think giving that level wise and all that, putting it in a public domain may not be appropriate for business reasons, so, I mean it is suffice to say that our attrition is at 19.17% or whatever.

Q - Mitali Ghosh, Merrill Lynch

Is it possible to get some color on, you know, has the attrition picked up more at let say the middle manager level or is it more at the fresher level, or not the fresher level but the junior level?

A - Srinivas Vadlamani

Yeah, I mean, I think you are going around the same thing. As I was mentioning I mean this is not in the interest of the company to giving out these numbers to the public domain. I mean there is attrition and it is at 19.17% at the company level, other than that I don’t think we will be able share anymore details.

Q - Mitali Ghosh, Merrill Lynch

OK, OK sure. And the other thing is on the attrition itself, you know, like you mentioned earlier the wage hikes, the above industry wage hikes that you have given this year, is to basically bring down the attrition levels to probably more optimum levels. So in that sense when you have given us this guidance of about less than 100 basis points margin decline over the course of FY07 have you taken the possible benefit of this wage hike and lower attrition into that?

A - Srinivas Vadlamani

Yes Mitali, I mean, as I was mentioning earlier this is a quintessence of all these things, the sigma, the sigma of all these initiatives and the positive and negative impacts each one will have, we have considered all that and then accordingly arrived at this less than, rather around 100 basis points decline year on year.

Q - Mitali Ghosh, Merrill Lynch

OK so you are factoring in some possible lower attrition already into this number?

A - Srinivas Vadlamani

Yes, definitely.

Q - Mitali Ghosh, Merrill Lynch

OK, and one question to Ram on the pricing environment, you know, instrumentally over the last few months how would you say that pricing is trending both from new customers as well as from some of the re-negotiations?

A - Ram Mynampati

Well, Mitali our experience is probably no different today than what has been in the last few quarters. One thing is average pricing has remained largely stable and our assumptions related to pricing remain the same. We have had instances where we were able to successfully re-negotiate existing contracts for higher prices, and we have also had instances where we have been able to renew deals at higher than average prices, but those are not so frequent, not so much in number to influence the average price to be positive substantially enough to have a material impact on average price. So today other than to say a pricing environment largely remains stable at a average price level, I don’t see any difference between today and last few quarters.

Q - Mitali Ghosh, Merrill Lynch

Right, and just one clarification on RSU impact that you mentioned Srini on the call earlier, I mean this RSU is something that could again be given out, fresh RSUs could be given out next year as well right, so the impact you gave is just for the current lot?

A - Srinivas Vadlamani

Yes Mitali, I mean at least for the future we have not taken a decision. We thought at this point in time we will make a kind of one-off kind of a thing and then, this 150 crores which I am talking of is based on this installment which we are giving now.

Q - Mitali Ghosh, Merrill Lynch

I see, OK. Thanks and all the best.

A - Srinivas Vadlamani

Thank you.

Operator

Thank you very much ma'am. Our next question comes from the line of Mr. Ruchit Mehta with ASK Raymond James.

Q - Ruchit Mehta, ASK Raymond James

Hi, good evening gentlemen and congratulations on achieving 1 billion dollars in revenues. Sir I just wanted to better understand your full year FY07 guidance, if I understand it correctly, Q1 you will see an impact of the salary cost of the employees that we added in Q4 therefore there will be a de-growth in earnings, that is what we indicated too. Q2 we will see the salary hikes kicking in so therefore there will be margin pressures and perhaps potentially earnings growth being flat or marginal growth. Q3 we will again see the impact on the SG&A front once the ESOPs get charged. So are you saying that Q4 will see, Q3 and Q4 particularly we will see acceleration in earnings in a significant manner?

A - Srinivas Vadlamani

I mean, yes, what you are saying is right, this quarter there is a decline and next quarter also there is going to be decline because of the effect of the increments, and yes, the uptick we keep seeing from Q3 and Q4 because of also the fact that some of the initiatives like cost optimization and productivity enhancement initiatives also start kicking in giving the benefit to us, and some of the ELTPs whom we are recruiting now they also will start getting billed then, so all these things are giving us the confidence that Q3 and Q4 numbers will be that much better, and thereby enabling us to deliver whatever guidance we are giving for the year.

Q - Ruchit Mehta, ASK Raymond James

OK, thank you sir.

Operator

Thank you very much sir. Next in line we have Mr. Trideep Bhattacharya with UBS.

Q - Trideep Bhattacharya, UBS Warburg

Hi, good evening gentlemen. Congratulations to the management on achieving 1 billion dollar mark. My first question is, is it possible to know the margin decline, EBITDA margin decline factored during the Q1.

A - Srinivas Vadlamani

The decline in margins, we are giving for the year Trideep.

Q - Trideep Bhattacharya, UBS Warburg

OK.

A - Srinivas Vadlamani

I mean, quarter on quarter we basically generally don’t talk about it, but I mean, going by the numbers for the EPS it is obvious that there is going to be a decline there.

Q - Trideep Bhattacharya, UBS Warburg

Right. OK. One more try, I don’t know, I know one participant tried it earlier, any data points on fresher or the experienced people in the history, I mean, historical fact can you share in terms of, just to understand where exactly the numbers are?

A - Srinivas Vadlamani

Trideep, if I understood your question what you are saying is although the people whom we recruited, how many are lateral and how many are entry level?

Q - Trideep Bhattacharya, UBS Warburg

That is right.

A - Srinivas Vadlamani

I think last year, I am afraid I don’t have that information, last year we have recruited gross of roughly around 12,000, which I was mentioning earlier.

Q - Trideep Bhattacharya, UBS Warburg

Right.

A - Srinivas Vadlamani

But out of that how many for the year, I don’t have readily, but for Q4 we disclosed that, out of the 3,079, roughly 2,442 or so are the entry level, balance are all laterals.

Q - Trideep Bhattacharya, UBS Warburg

I see.

A - Srinivas Vadlamani

For the entire year I think the number is around 5,000.

Q - Trideep Bhattacharya, UBS Warburg

I see.

A - Srinivas Vadlamani

5,000 entry level.

Q - Trideep Bhattacharya, UBS Warburg

OK. My last question is in terms of, like you know, I know GE in terms of, as a unit has been growing probably a slightly slower than that of the full company, do we expect a similar kind of outlook in FY07 as that of 2006, or do you think this could vary?

A - Ram Mynampati

This is Ram Mynampati here. While GE continues to be our largest customer, I am afraid we are not going to be in a position to give guidance at customer levels, we are going to manage the relationship like the most important relationship that we have and we will do everything that we can to grow the relationship appropriately enough in line with our overall business discipline. Other than that we would not be in a position to give any greater data point on specific customer level.

Q - Trideep Bhattacharya, UBS Warburg

And in terms of your new customers, is it possible to quantify in terms of pricing whether they are coming at higher, and if so, how much as compared to the company average, or they are coming at company average?

A - Ram Mynampati

Some customers are coming in at higher than company average. There are some customers who are obviously coming in at lower, and customers at the average level of the company. There is nothing that we can say that is going to materially impact the average pricing in foreseeable future other than to say that new customers in some instances are coming at higher than average prices.

Q - Trideep Bhattacharya, UBS Warburg

I see. Thanks a lot and best of luck.

A - Ram Mynampati

Thank you.

Operator

Thank you very much sir. Our next question comes from Mr. Anantha Narayan with Morgan Stanley.

Q - Anantha Narayan, Morgan Stanley

Thank you and good evening everyone. My first question was on the wages, now with these wage increases that you plan to give in fiscal 2007, where would that put Satyam vis a vis your peers in terms of salary levels?

A - Ram Mynampati

It is very, very competitive, and it will make us strong in terms of being able to attract the best talent in our opinion.

Q - Anantha Narayan, Morgan Stanley

Would it be fair to sort of assume that during that next round of wage increases, Satyam would probably be in line with most of its peers?

A - Ram Mynampati

No, no, we are not at this time drawing any parallel or comparing with competition, with specific peers, but generally speaking our, with these increases our salaries and sales would be very attractive in the market place, and we believe that this would help us not only retain the available talent quite well but also attract lot more talent.

Q - Anantha Narayan, Morgan Stanley

OK, and my final question was on these large deals such as the General Motors one where Satyam may not necessarily be the prime contractor but maybe working with other IT services companies, you know, typical in these deals how do margins compare versus the once that Satyam is directly the prime contractor?

A - Ramalinga Raju

I cannot comment on any specific deal but generally speaking any deals whether as Ram was saying it is a large deal or otherwise, or in some instances where we would have partnered with other vendors, we are ensuring that the margins are not compromised, and we are generally speaking not operating in any instance where we are acting as a subcontractor, you know, we have always in the last particularly one or two years been only partnering with others, and in that sense the partnership arrangements are such that our margins would be as good as any...

Q - Anantha Narayan, Morgan Stanley

OK, thank you and I wish you all a good luck.

Operator

Thank you very much sir. Next in line we have Mr. Pankaj Kapoor from ABN Amro.

Q - Pankaj Kapoor, ABN Amro

Just one question on the attrition part, in the last two quarters we have seen a significant jump, and I believe our response in terms of salary hikes have been to that, can you give us some sense of the profile to whom we are loosing the people both onsite and offshore, is it more to the…?

A - Ram Mynampati

In the last couple of years, we had generally increased presence of large global systems integrators in India, and as compared to an environment couple of years ago where someone would have left a company like Satyam to go on overseas assignment with a competitor, today there is increased level of people leaving companies like Satyam to join other large system integrators, coming from a global background or other larger companies in India, and we are also finding that our ability to attract from such players has also gone up. Therefore, it is a two-way street, and that is one significant change that we have seen.

Q - Pankaj Kapoor, ABN Amro

OK, can you also comment on how the attrition has been onsite and where are we
loosing our people at onsite to?

A - Ram Mynampati

Onsite attrition is generally not limited to local larger players present in let us say US or other places, it is not limited to that. It is also not specific to even larger players such as IBM or Accenture. It is much more broad based. The demand for talent from India is generally higher, and therefore in the international environment it relates to a lot more companies who are there in the IT sector.

Q - Pankaj Kapoor, ABN Amro

So have you seen an uptick in attrition at onsite also in the recent quarter?

A - Ram Mynampati

I cannot comment specifically on the recent quarter but generally speaking the attrition levels as you are aware in the industry have been higher than the last five to six quarters particularly, and even other players, where there is traditionally a lower level of attrition have been on an annualized basis greater attrition levels, and the trend is not just limited to offshore, you know, it pertains to onsite also, but it is we believe going to come under control. We have operated at significantly lower attrition levels, and we believe that that status can be attained fairly quickly.

Q - Pankaj Kapoor, ABN Amro

OK. Thanks and all the best.

Operator

Thank you very much sir. Our next question comes from Mr. Sudhanshu Rajpal with B&K Securities.

Q - Sudhanshu Rajpal, B&K Securities

Sir, just two questions, first of all, if you could just give us a qualitative flavor of the thing that you know as we assessed the demand environment or the customer behavior this time around before giving the guidance compared to last year when we had given the guidance, you know, what have incrementally changed?

A - Ram Mynampati

See, this is something that we have talked about in this call, answered extensively. All we were stating was that we have had an excellent year, and our performance was very high last year, and at a broader level there is not a significant change in the environment, but while that in the case one has to also take into consideration the fact that quarterly variations do happen. If you compare our performance in the last four quarters, each quarter was different, and similarly when one gives a guidance one has to take into consideration what a systematic assessment is telling you, and that assessment from time to time could change but one is constrained to take back as they are available at a given time and that is what we have done, and we feel fairly comfortable about the guidance because that is the best we could have done. Last year we had given a guidance based on the certain approach that we have taken, and from time to time things may have changed, but one cannot anticipate change, you know, if change happens you adjust your specific reality to that, but at this point in time having taken things into consideration we felt quite comfortable about what we have guided for.

Q - Sudhanshu Rajpal, B&K Securities

Sure, sure understood. OK, no, I was just trying to understand just this fact that you know if around the last year we had given a 26% guidance, that finally accelerated to 36%, which means that incrementally we are in a more positive off-shoring environment, so that is, it is just from that point that I wanted to understand the guidance, but any ways. And second, two quick questions for Srinivas, sir if you could just tell us the range of utilization that we now aim to be in given that we would be going in for a higher campus hiring?

A - Srinivas Vadlamani

Yeah, as I was mentioning earlier the expectation is that the utilization level tend to come down but if we look at utilization excluding trainees, we expect that to kind of remain fairly at a high level, anywhere between 7-8%.

Q - Sudhanshu Rajpal, B&K Securities

OK sure. And second question to you sir was that if you could tell us that recruitment costs as a percentage of sales, what was that particular number in 2006 compared to 2005, recruitment costs?

A - Srinivas Vadlamani

Recruitment cost, I don’t have that readily, most of it is included in the legal and professional charges. If you look into our schedule, that is roughly around 2-2.5% of our revenues, but then that includes recruitment charges as well as H1B visa processing charges, all those things are put in that.

Q - Sudhanshu Rajpal, B&K Securities

OK. No, I was just trying to understand that if you were to qualify reducing attrition rates because of good salary hike as you were just pointing out, and if you were to point out that in the profit and loss account as a line item, which percentage will actually have a decline moving forward as attrition rates decline, I was just trying to get to that really.

A - Srinivas Vadlamani

No no. It is very difficult at this point in time to give any guidance on that.

Q - Sudhanshu Rajpal, B&K Securities

Right, not a problem. I am through, thanks.

Operator

Thank you very much sir. Our last question is a followup from Ms. Mitali Ghosh of Merrill Lynch.

Q - Mitali Ghosh, Merrill Lynch

Yes, thanks. I just had a very broad level question, I mean, FY06 has been a great year for Satyam, and I was just wondering if you could give us your thoughts on what is sort of one key, the most important change that the organization you feel has seen in 2006 and what would be your set of top most priority for 2007?

A - Ram Mynampati

We are looking at the current year with a lot of anticipation. We believe that the last year and last few years have given us the confidence that we can compete head on with global large systems integrators, that we can establish leadership in given areas, and that we can demonstrate our ability to manage sizable projects, and therefore the general statement that we can offer at this time is that we are stepping into this year with a very positive mindset. The mood within the company is quite buoyant, and we are preparing for good things ahead of us.

Q - Mitali Ghosh, Merrill Lynch

OK, so on that happy note, thanks and all the best.

A - Ram Mynampati

Thank you.

Operator

Thank you very much ma'am. At this moment I would like to hand over the floor back to the Satyam management for final remarks.

A - Srinivas Vadlamani

I would like to thank every one of you for your active participation. If you have any further questions or clarifications please do get in touch with us. You can either send an email or call our IR personnel. I would like to once again thank every one of you. Good day and good night.

Operator

Ladies and gentlemen, thank you for choosing WebEx Conferencing Service. That concludes this conference call. Thank you for your participation. You may now disconnect your lines. Thank you and have a nice evening.

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