Satyam F2Q06 (Qtr End 9/30/06) Earnings Call Transcript

Satyam Computer Services Ltd. (SAY)
F2Q06 Earnings Call
October 20, 2006, 9:00 am ET

Executives

B. Ramalinga Raju - Founder and Chairman
Ram Mynampati - President, Commercial & Healthcare Businesses
V Srinivas - Chief Financial Officer
Venkatesh Roddam - Chief Executive Officer

Analysts

Sandeep Shah - Motilal Oswal
Surendra Goel – Citigroup
Pankaj Kapoor - ABN AMRO
Trideep Bhattacharya – UBS
Mithali Gosh - Merrill Lynch
Shekar Singh - ICICI Securities
Sameer Goyal – Alchemy
Rod Bourgeois – Bernstein
Bryan Keane – prudential
Joseph Foresi - Janney Montgomery
Anthony Miller - Arete Research
Rama Rao - RR Capital Management
Julio Quinteros - Goldman Sachs
Ashish Thadani - Guilford 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.

V Srinivas - Chief Financial Officer

Thank you, Pratiba. This is Srinivas Vadlamani, CFO Satyam Computer Services Limited. Good morning and good evening to you all and thank you for joining us to discuss our Q2 results.

Joining me on this call are Raju and Ram from Satyam; and Venkatesh CEO of Nipuna. Before we start the discussion I would like to draw your attention to the fact that during this call we may make certain forward-looking statements concerning our future growth prospects. Such statements involve a number of risks and uncertainties associated with our business. Please refer to our various periodic filings with the 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 hand over the session to Raju.

B. Ramalinga Raju - Founder and Chairman

Thank you, Srinivas. Good morning and good evening. Thank you for joining us on the call today. I take this opportunity to wish all of you a happy and prosperous Diwali. A noteworthy highlight of positive performance in Q2 is the 11% sequential growth in revenue which not only betters the guidance substantially but is also the highest growth witnessed by the company in the last five years. The growth was driven by a very strong volume growth of 9.5%. In addition EPS at Rs4.89 was higher than the guided figure of Rs4.43. On the back of this performance we are pleased to revise our revenue guidance upwards for the whole year. We now expect revenue as per Indian GAAP consolidated financials to grow between 34.6% and 35.1%. The corresponding EPS growth for the fiscal 2007 is expected to be 35.9% to 36.4%.

Q2 witnessed accelerated growth in select verticals such as TIMES, Healthcare and Retail in addition to inline growth in staple verticals. Increase in the contribution of consulting and enterprise business solutions, which stands at 40.4% of revenue is a result of our continued investment and favorable reviews from industrial analysts about the maturity of services in this space. We observe a healthy demand environment signifying greater adoption of noble delivery model and we believe, based on our interactions with my key decision makers that this positive trend will continue in the near term.

We are also please to note that a greater proportion of discretionary spending is being directed towards leveraging a global delivery model. Increasingly, we are participating in engagements that are strategic in nature dealing with business transformation issues. This qualitative change is evident across all market segments giving rise to potential for a broad based growth.

Satyam’s continued focus on building a diversified business model stands to benefit greatly from this development. To support our anticipated growth in the near term, we have added 4025 associates in Q2, which is the highest ever quarterly recruitment. Q2 also saw a reversal in attritions a key focus area in the past few quarters. As a direct consequence of aggressive measures taken on the compensation front annualized attrition had come down from 18.3% in Q1 to 15.9%. With the impending introduction of RSUs in Q3 and continued focus on non-monetary measures, we are hopeful that this would improve further in the near term.

We continue to notice a strong pipeline of deals that in addition to being significant in size also require us to take accountability for integrated collusion. An example of this is our recent win from a leading international airline but managing their enterprise application support and maintenance. There is increased consolidation, redefining market segments in the enterprise business solutions space. On the demand side there is a greater acceptability among our user organizations to go for market ready solutions driving the need for integration and customization. Given our leadership in this space, we are in a strong position to address this growing market. In addition, we are particularly excited about engineering services and opportunities to participate in innovation led solutions.

I’m pleased to inform that Satyam has won the American Society for Training and Development’s 2006 best award for it’s commitment to provide world class learning to associates. The board has approved an interim dividend of 50% for fiscal 2007. I would now request Srinivas to comment on the financial highlights of Q2.

V Srinivas - Chief Financial Officer

Thank you Raju. Our detailed financials have been posted on the website, and I assume that most of you would have got an opportunity to go through the same. However, I will now share some important highlights. The 11% sequential growth in revenue under consolidated Indian GAAP is driven by 10.7% offshore volume growth. Average billing rates moved up marginally compared to previous quarter. The next manpower edition of 4025 in Q2 for the parent company includes 2953 freshers. We expect the growth in our manpower addition for FY07 to be around 13,000.

Increments for the year have been finalized, effective 1st July at 6% for onsite associates and at 18% for offshore associates both being higher compared to last year. The impact of increments on the margins in Q2 has been 420 basis points. However, the net impact on margins has been 197 basis points aided by 125 basis points savings on account of lower resale cost, 30 basis points due to rupee depreciation, 30 basis points due to subsidiaries earning margin positive and balance due to various other operational efficiencies. Parent company’s cash and bank balance increased by US$ 16 million during the quarter.

CapEx for the quarter was US$ 23 million. CapEx for FY07 is estimated to be around US$ 75 million. After factoring in the charges on account of RSUs proposed to give in Q3 this year, we expect consolidated margins for fiscal 2007 to be around 100 basis points lower compared to fiscal 2006. The charge because of these RSUs by the next quarter is expected to be US$ 8.5 million. And our guidance is based on an exchange rate of Rs45.30 to $1.00.

Coming to our subsidiary Nipuna, Nipuna reported revenue of US$ 9 million and added 441 associates. Nipuna is expected to achieve revenue of US$ 36 million in the financial year which is a growth of 80% over last year. All our subsidiaries and joint ventures taken together have for the first time made a positive contribution to the margins and we expect this trend to continue in the next two quarters as well. Coming to the US GAAP net income for the quarter was US$ 65.5 million after factoring in a stock compensation charge of US$ 3.5 million on account of FAS 123R. For fiscal 2007 revenue under US GAAP is expected to grow between US$ 1.43 billion to US$ 1.44 billion a growth of between 30.8% to 31.3%. Basic spending per ADS for fiscal 2007 excluding the stock compensation charge we expect it to be $0.93, representing a growth of 39% over fiscal 2006. I stop here, thank you and now we will throw open the session to the Q&A.

Question-and-Answer Session

Operator

Thank you very much sir. We will now begin the Q&A interactive session. [Operator Instructions]. First in line we have Mr. Sandeep Shah from Motilal Oswal.

Sandeep Shah - Motilal Oswal

Yes sir, this year on the tax rate it has been low for the first half, where do you see the tax rate going forward. And what was the reason for the lower tax rate in the first half?

V Srinivas

Yes, this is Srinivas here, the tax rate on PBT for Q2 is around 8.8% and it was 9.4% in the Q1. And this is the primarily because of the lower margins and the rate increases we have given and also the default tax asset that has been created because of increased provision for leave encashment. That is the primary reason and for the entire year we expect the tax rate to be in the range of around 9.5% to 10%.

Sandeep Shah - Motilal Oswal

Okay, and do you believe this taxing will be maintained in FY08 also?

V Srinivas

That we are now basically commenting for this financial year, the next year I think we need to look at the guidance and will be in a better position to talk about it.

Sandeep Shah - Motilal Oswal

Okay, and in CNBC you said that the volumes are expected to improve in the coming quarters, but our RSU charge will be (inaudible) 110 basis point of our Q3 guided sales and you also talked about that the Rupee appreciation will also affect the margins if its had 2% of (inaudible) margin by 70-80 basis points. So how you are expecting what will be the margin in the US which can compensate close to around 200 basis point impact on the margin.

V Srinivas

Running the growth and revenue that generally happens when the margins dip in the quarter when we give the increments and in the subsequent quarters because of the growth we get in the revenues that is going to help us in managing our margins better. Apart from that various other levers which we keep talking about continues to help us. For example, the loading factor has fallen this quarter because of the trainees timing and all that. So it fell 100 basis points. So we have some levers there by improving the loading factors we can increase the margins. And also the average cost of delivery by broadening the associates pyramid we are reducing our average cost of delivery. That is also going to help us and the (inaudible) again that is our focus area and we continue to rein that in. And fourth and more importantly the subsidiary performance is also improving. As you know historically, subsidiaries have a drag effect on the margins but as I was mentioning this quarter, Q2 is the first quarter when they positively contributed to our operating margin. We expect that to continue into the future as well. So these are some of the levers we are focusing on to basically show a quarter on quarter improvements in the margins.

Sandeep Shah - Motilal Oswal

Sir, can you quantify how much savings can come through subsidy performance in the coming quarters?

V Srinivas

We are not giving guidance at the subsidiaries level, it is difficult for me to quantify each of these levers but definitely that is going to positively contribute.

Sandeep Shah - Motilal Oswal

Okay and sir unlike all peers for us the client churning or the improvement to higher revenue bracket, it has declined for more than 10 million from 33 to 32, so what has happened here?

V Srinivas

I didn’t get the question, what is that?

Unidentified Company Representative

See our metrics indicate that we have ever --

Sandeep Shah - Motilal Oswal

More than ten --

Unidentified Company Representative

-- Instead of 33 it has dropped to 34.

V Srinivas

Okay, you mean the $10 million customer?

Sandeep Shah - Motilal Oswal

Yeah.

V Srinivas

Well, I think I mean, they are just like whatever goes for variation, we need to also look into it, but on the other hand if you look at our million-dollar customers they have gone up by 12. So similarly the $5 million customers also have improved.

Sandeep Shah - Motilal Oswal

Okay and sir just last, bookkeeping question, revised rupee-dollar rate of 45.30 is being guided for the second half or for the year as a whole?

V Srinivas

For the year.

Sandeep Shah - Motilal Oswal

For the year as a whole.

V Srinivas

For the next, I mean for the next two quarters.

Sandeep Shah - Motilal Oswal

For the next two quarters?

V Srinivas

Yes.

Sandeep Shah - Motilal Oswal

Okay, thanks very much and all the best.

V Srinivas

Thank you.

Operator

Thank you very much sir. [Operator Instructions]. The next question comes from the line of Mr. Surendra Goel with Citigroup.

Surendra Goel - Citigroup

Yeah, hi good evening. Could you just comment on the driving outlook going forward?

Ram Mynampati - President, Commercial & Healthcare Businesses

This is Ram Mynampati here. What we see first of all, as far as guidance for the rest of the year is concerned we are maintaining stable pricing environment for guidance for Q3 and Q4. What we are seeing in the market is that the pricing environment is tending to be more positive than the previous quarters. This is amplified by the fact that we continue to see significant new winds coming in at higher than average prices. And we are also seeing in many instances where we are engaged in contract renegotiation with existing customers we are able to get pricing revisions approach in the existing contracts as well. So we are certainly more positive about the pricing environment moving in to the future but we have taken a stable pricing assumption as far as the rest of the year is concerned.

Surendra Goel - Citigroup

Could you help us a bit more why quantifying the price increases, the kind of price increase you are getting from new customers and the kind of increases from re-negotiation from existing customers?

Ram Mynampati

Well I will talk at the average level. So on an average we are seeing about 3% to 5% increase in prices in new customers. And I would say broadly in the same ballpark on an average as far as re-negotiated contracts also are concerned.

Surendra Goel - Citigroup

Okay any idea in the sense like what percentage of re-negotiations you are able to push through a price increase?

Ram Mynampati

Again difficult for us to quantify those numbers, all I can say is in many instances where we are engaged in re-negotiating contracts we are able to successfully negotiate for a price increase.

Surendra Goel - Citigroup

Okay, thank you so much.

Ram Mynampati

Thank you.

Operator

Thank you very much sir. Our next question comes from the line of Mr. Pankaj Kapoor with ABN AMRO.

Pankaj Kapoor - ABN AMRO

Yeah, hello congratulations on it first, couple of questions first is that, can you give a sense on the outlook for Q3, we are talking about of 4% to 4.5% kind of revenue increase, but if you are looking at fairly strong growth on the earnings while we are guiding for flattish margins. So can you help me understand what is the interplay between the margin and the fat level, where you see the momentum coming in?

V Srinivas

Pankaj, this is Srinivas here. We’re kind of saying that we are going to see a quarter on quarter improvement in margins. So to that extent we are not saying that it is going to be flattish, we are saying it is going to be -- there is going to be some improvement.

Pankaj Kapoor - ABN AMRO

Is any kind of a onetime cost -- anything hidden between the operating and the net profit level?

V Srinivas

No, there is no onetime expenditure.

Pankaj Kapoor - ABN AMRO

Okay and second, the improvement that we saw in the SG&A front, can you help me understand what exactly happened and how you were able to successfully do it so much -- quarter?

V Srinivas

Visa is the single most reason, it is quarter on quarter, it declined by Rs.17 crores and the percentage it is roughly around 120 basis points so that is the primary reason.

Pankaj Kapoor - ABN AMRO

Okay, thank you and all the best.

V Srinivas

Thank you.

Operator

Thank you very much sir. Our next question comes from the line of Mr. Trideep Bhattacharya with UBS.

Trideep Bhattacharya - UBS

Good evening gentlemen, congratulations on good numbers. If you could talk about the large contract in the pipeline and also on the outlook on the (inaudible) the negotiations lead in to any cut in prices or anything that you should worry about going forward?

Ram Mynampati

Trideep this is Ram. As far as large contracts are concerned you know we have a focused effort going into the strategic deals that we are pursuing. Two things that we are witnessing, numbers one the pipeline is becoming stronger which means the number of deals that we are pursuing, that we categorize as large deals is on the rise, that’s a very positive sign for us and we are also see improvement as far as success rate is concerned in large deals. You know if we look at the numbers I would say we are probably pursuing around 25 deals or so in some stage or the other and we would say about a dozen or so, we are in advanced stage of pursuit. So pipeline is very healthier as far as large deals are concerned and we do continue to have our fair share of wins while we are not at liberty always to publicize those wins. We have publicized some wins that we had the opportunity, but there are other instances where we have success only won the engagements but we are not at a liberty to publicize. So, that we see in future is this trend of larger deals requiring us to take accountability and responsibility to deliver integrated services and solutions. We believe that will be a continued trend and it will also require us to integrate many services by including infrastructure services, application management, enterprise applications and the like. So, fairly it talks at a different level of capability in the organization which is a four systems integration type and we are building and preparing the organization for dealing with the same.

As far as the outlook related to customers are concerned it is not a surprise that the contribution from the top customer has come down but is fairly reflection of the careful management of revenue and profitability, but that is not necessarily a phenomena that is applicable to every customer. We are seeing strong pipeline across all verticals, across all geographies, and you could see that the threshold level as far as the 10th largest customer that we have revenues being given today that is continuing to go up and every quarter that we have seen clearly talks about their broadways growth and a very strong basis of our customers who bank our future growth.

Trideep Bhattacharya - UBS

Thanks, this 25 deals that you are talking about, is it possible to quantify some size in terms of, I mean what is the range of prices when you say large contract?

Ram Mynampati

No, I’m afraid it would not be possible for us to quantify, because we are at a very early stage, all I’m sharing with you is the healthy pipeline that we are dealing with as we get closer pursuing deals in a more definitive fashion we would be able to say that.

Unidentified Company Representative

But the minimum sizes here are above $50 million or $100 million.

Trideep Bhattacharya - UBS

I see and when we talked about this renewals and new events in terms of pricing scenario, when do we think that this will start impacting positively the financials?

Ram Mynampati

Well, as we have shared with you all before, we have two things, one is the contracted price, second is the realized average price, and there are host of things that go into influencing the realized average price positively that includes you know, the utilization in closed fixed price engagement, includes offshore makes, includes a host of other things and the contractual firms within which these rates get applied, our endure obviously is to make sure that as much of price increase that we are getting at a contract level flows through the average pricing increase, but we would not be in a position to say definitely when it will happen. We are seeing symptoms of that and are -- we are inching up as far as the average price realized is concerned, we certainly are hopeful that it will happen.

Trideep Bhattacharya - UBS

Sure, all the best and happy Diwali.

Ram Mynampati

Thank you, same to you.

Operator

Thank you very much sir, next question comes from the line of Ms. Mithali Gosh with Merrill Lynch.

Hello, Ms. Gosh, sorry to interrupt ma’am your voice is breaking up. Hello, ma’am?

Mithali Gosh - Merrill Lynch

Yeah, is it better now?

Operator

Yes, much better.

Mithali Gosh - Merrill Lynch

Okay, I was saying that the attrition level came down quite well this quarter, so if we could have a little more detail in terms of you know, what the involuntary/voluntary sit was like and also may be some kind of cross levels and secondly, if you could update us on what the employee mix looks like now in terms of less than three years, more than three years of experiencing.

Ram Mynampati

That I am afraid that we may not be able to detect the things to that level of detail. Suffice it to say that think to save that the impressive increment that we have given in the last quarter mixed with many other measures that we have taken have started yielding good results. There has been quite significant and dramatic reduction in the attrition rate you know, by few percentage points as you may have observed. We quite presume that this trend will continue and we are also quite happy that it comes at a time when we have added the maximum number of associates in one quarter as compared to any quarter in the past.

Mithali Gosh - Merrill Lynch

Right, anything possible to share on the employee mix.

Ram Mynampati

The employee mix all at different levels, do you mean?

Mithali Gosh - Merrill Lynch

Yeah, I am just trying to get a sense of what leverage you have in being able to broaden your employees a little further.

Ram Mynampati

See we have increased the proportion of entry level of the people in our -- as we were aware the number of more senior level people at the proportion of entry level people in our company has been in the first tilted more towards the more experienced levels and we are leveraging on the possibility of enhancing fairly capable but at the same time entry level inductions, such that the average cost can also come down without compromising on the quality of delivery. And that we have seen a fairly good and you know growth at a proportional board of recruitment.

Mithali Gosh - Merrill Lynch

Right and I am just trying to get some data around that because I do understand as far as any word that you have been moving.

Ram Mynampati

Yes, please go ahead and anything else.

Mithali Gosh - Merrill Lynch

Yeah, the second thing again was on the 257 cost efficiencies that we have seen in the other cost line this quarter which is something that you know, what does on the cost that have gone down and is it really sustainable. Because you know other than visa which probably reflects in travel costs, I mean there are some other costs that have gone down as well so. Just wanted a bit more detail on that.

Ram Mynampati

Yes, so one general comment I would like to make is that we are using technology and virtual delivery of services within the company that is fairly efficiently and we have seen fairly good results of the same whether it be in terms of quality of services that we are able to render to the increased proportion of people that we are servicing or an account of greater cost effectiveness that we have been able to bring about. Therefore the reduction in SG&A cost is reflected by that reality. Therefore we feel that there is still some room for improvement. We are also helped by the fact that the Visa cost will cost lower as compared to last quarter.

Mithali Gosh - Merrill Lynch

Okay, thank you.

Operator

Thank you very much, ma’am. The next question comes from the line of Mr. Shekar Singh with ICICI Securities.

Shekar Singh - ICICI Securities

Hi, one point basically if you look at the pricing increase which you have work over the last two, three quarters, now this pricing increase as compared to what some of your peers have got seems to be much lower, if you would like to just comment on it.

Ram Mynampati

So, you know, we are talking about two different things here. One is the pricing increase has negotiated within the contractual terms. And there I don’t see lot of difference as we hear numbers about the percentages that other organizations have been able to get as far as price influence are concerned. I don’t think we are so different from those ranges. I think what you are finding all these been add, increase that we are able to pass on to the earlier price at the average level. And that -- while the contractual price will play a certain role there more important role will be played by the operation of metrics as well as the composition of deliveries that includes the number of fixed price contracts that we are executing the productivity benefits that we are able to drive towards the type projects that we are executing. And, you know, if you look at our revenue mix in excess of 90% of our revenue comes from existing customers at any point of time. So you also have to take into account in any given quarter, how many of the customers that are contributing to 90% of our revenue have gone through a price revision cycle and how much of that is applied to the revenue computation of that quarter. So it’s not a linear equation that is easier to compute and compare. So we are obviously managing the situation very closely. Our endeavor is to pass on that as much of price increase and more to a productivity enhancement to be average reduced price. So I’m not sure whether it’s a fair comparison from pure numbers perspective.

V Srinivas

I would like to just add to what Ram has stated that we have given the guidance by taking many of these factors into account. We may not be able to analyze particularly in this forum and compares and we are doing -- competition, but we are quite optimistic about general prices of moving upwards in the next quarter and coming year because the environment clearly is indicative of that. Many of the increases that we have brought will start reflecting in the revenues as the ramped up starts to happen at the level of those customers that we have acquired recently.

Shekar Singh - ICICI Securities

Okay sir. Secondly, I just wanted to know like, if I work for (inaudible) employees as a percentage of either the onsite offshore employees or as a percentage of the total employees what was in the last 10 quarters. That percentage has come down quite significant change and basically a small, just calculating in the way of spending downwards though I suggest you both that you are having more employees offshore, but the high onsite percentage at times is also indicative of fresh project to start. So, from that point of view are we missing on something over there?

V Srinivas

I do not think so, the fact that we have more number of -- increasing number of offshore associates is also reflected in the fact that the proportion of offshore revenue has also gone up. In fact, it had been consistently increasing that is one thing. And another thing is the fact that over a period of time as we are executing more and more projects and bringing greater efficiencies in the models one can clearly extend the same to being able to perform newer project without necessarily having to have the same proportion for onsite presence affairs one use to have. So it doesn’t necessarily imply that if you have more onsite people it would then lead to greater growth in the later years, it not necessarily a conclusion that we can draw.

Shekar Singh - ICICI Securities

Okay, so thanks a lot and congratulations on good set of numbers.

Operator

Thank you very much sir. Our next question comes from the line of Mr. Hitesh Zaveri with Edelweiss Capitals.

Unidentified Analyst

Hi, sir this is Kunal here. Sir would you be able to give me the breakup of the other income, 28 crores?

V Srinivas

We have a crore of Rupees loss there because of the forex translation.

Unidentified Analyst

Okay.

V Srinivas

So, balance is in the interest income.

Unidentified Analyst

Okay and now sir currently what is the hedge position that we have and at what rate?

V Srinivas

We have a hedge of $211 million or so.

Unidentified Analyst

Okay, at what average rate?

V Srinivas

The average rate is roughly around 45.60 or something like that.

Unidentified Analyst

45.60 okay. Sir second question is on the engineering services site. What are the new initiatives that we have taken in terms of achieving the higher growth?

Ram Mynampati

Yeah this is Ram Mynampati here, from the very fact that we are very excited on the potential in integrated engineering services, is the reflection of the focus that we have brought to this area of business. We believe that, there are two things that are happening. Number one, vertical there we have done very well on the core area like application development and enterprise solutions, those customers want to extend the reach as far as global deliver part is concerned into other complimentary areas of their business. So we are seeing lot of activity as far as services is concerned in manufacturing sectors, aerospace and defense sector, telecom sector and retail. These are the verticals where -- while they have established track record of using global deliver for traditional services, they are very positive in playing the ball, exploring opportunities -- services. So, what we are looking at is investing in creating the right solution frameworks and right competencies directed towards each of these verticals so that we are able to accelerate the growth given that we have a very strong customer base and particularly in manufacturing. So we are doing number of things that clearly focused on capitalizing on the segment that we see in the beginning of services

Unidentified Analyst

Sir, and would be able to give me the number of employees currently working in the engineering segment?

Ram Mynampati

Currently we have about 6% of our revenues coming from engineering services. The employees count obviously keeps changing based on the investment that we’ve made and the type of opportunity that we pursue as far as we can say that it contributes about 6% of our revenue today.

Unidentified Analyst

Sir, okay thanks a lot -- appreciated.

Operator

Thank you very much, sir. Next in line we have Mr. Rajeev Ramchandani from Religare Securities). We just lost connection with Mr. Ramchandani. Next question comes from Mr. Sameer Goyal with Alchemy.

Sameer Goyal - Alchemy

Yeah hi, good evening, how do you see the spending happening in the enterprise solution space up to?

Ram Mynampati

Yeah, this is Ram Mynampati here. There are two things that are visible in enterprise solutions space. One, clear consolidation in the space is for redefining the services landscape extended as far as enterprise solutions are concerned. One, we are seeing the greater adaptation of enterprise solutions to many of the back office areas within the enterprises much more so in favor of packaged applications compared to custom billed applications. That is the trend that we are seeing. Second, the areas that are addressed directly by the packaged applications but continues to do move up you know, more longer sufficient to the manufacturing or human resource or finance applications. Today we are in the regions extending beyond the code of enterprising to supply chain management, customer relationship management and integration of applications across many various, so two things that we see. Number one; there would be a greater adaptation of enterprise solutions to a much larger portion of the business adapted by the organizations. Second (inaudible) will probably, you know, few guys to a few vendors competing for similar opportunities to the extent that we are able to develop the consulting capabilities to provide best of the good suggestions in this space. I think that we -- service the market very well.

Sameer Goyal - Alchemy

No, my question was actually on the vertical growth. We witnessed a strong growth -- banking and international services vertical growth from some of your peers like Infosys and TCS; however in your case it was a little muted this quarter. And then since apart from Q1 or the last four quarters its been muted, any reasons for that?

Ram Mynampati

No specific reason. You know, these quarterly changes happen but we are very focused on enhancing our capabilities in banking and financial services. And in fact, we see a very healthy pipeline in VSSI. But quarter-on-quarter changes will happen but we are overall equally positive about VSSI sector.

Sameer Goyal - Alchemy

And all figure we have been seeing a steady shift in your revenue mix from TMN to fixed price. Could you elaborate reasons on that?

Ram Mynampati

There are two things. Number one, that is our desire. We will like to have the opportunity to put our arms around what it is that we need to deliver and be in a position to effectively manage the cost and thereby the margins of those engagements. So that is our stated position as far as increase in the fixed price contribution is concerned. Second, the reason why we are able to that is because many of our customers that we have been servicing for many years have greater confidence and comfort in engaging with other fixed price environment because it requires two to tango, it requires customers also to be as comfortable in engaging in fixed price environment we see larger portion of our customer based been more favorable towards fixed price engagements.

Sameer Goyal - Alchemy

This is the last final question, would additional charge to be charge fully in Q3 or between the Q3 and Q4?

Ram Mynampati

I believe it spread between current and Q4 and also into the future, yes.

Sameer Goyal - Alchemy

Okay.

Ram Mynampati

So out of the $8.5 million that is equally spend between Q3 and Q4.

Sameer Goyal - Alchemy

Okay, and the next year Rs.70 crores which had spoken earlier was getting spread across full quarter?

Ram Mynampati

Yes.

Sameer Goyal - Alchemy

Okay, thanks and best of luck.

Operator

Thank you very much sir. [Operator instruction]. Next question comes from the line of Mr. Kumar with Brics Securities.

Unidentified Analyst

Hello sir, I was just seeing your standalone income statement and your domestic business seems to have done quite well. It has grown by 32%. Could you provide some color on that?

Ram Mynampati

Well, India continuous to be focus area for us. There are two types of revenue that we count as domestic revenue. One means global customers that we are delivery services to their Indian location from India, but also contributes to the Indian revenue. Secondly, the customers that we are able to service in India, so what we are seeing is that there is a greater opportunity that is evident in India as Indian markets expand and are more progressive, secondly as I said numbers of customers that we are delivering to services from -- within our Indian facilities to their Indian locations. So that reflection also accelerated growth for our customer addition in India is concerned. So all we can say that they are fairly taxable, the convergent markets and our ability to service Indian markets with global standards.

Unidentified Analyst

Right, sir one more thing I joined slightly late so I think I missed out on something. Could you provide me the number of freshers which were added in this quarter?

V Srinivas

Clear on the 3000, this is Srinivas here.

Unidentified Analyst

3,000 okay, thanks.

Operator

Thank you very much sir. At this moment I would like to hand over the floor to Lori to conduct the Q&A session with participants at the International Center. Thank you, and over to Lori.

Operator

Thank you Pratiba, we will now begin the Q&A session for participants connected to the WebEx International Bridge. [Operator Instructions]. Your first question comes from the line of James Friedman with SIG. Mr. Friedman your line is open.

James Friedman - Susquehanna

Hi it’s James Friedman with Susquehanna. I just had a couple of quick questions most of which have been covered. Did you update the head count guidance; I think previously had guided from 11,000 to 12,000 rows, I was wondering if you might a new numbers, Srinivas?

V Srinivas

Yes James we basically saying that growth addition is going to be 13K.

James Friedman - Susquehanna

1-3?

V Srinivas

1-3, yes.

James Friedman - Susquehanna

Okay. The number of freshers in the quarter was impressive, but I want to make sure that I had the utilization correct, you are saying that the offshore utilization including trainees, was effectively flat sequentially 71.1%?

V Srinivas

Yes, you are right.

James Friedman - Susquehanna

I guess my question is how did you maintain such utilization at the same time increasing the fresher headcount so significantly?

V Srinivas

This leading factor which you are talking about is excluding trainees. So the next time these people whom we added in the quarter, we will be excluding that. So this, if you basically look at -- sorry, this 71.11 is including trainees, and the last quarter 71.24. And if you look at the recruiting trainees, we are now seeing a decline from 79.56 to 78.75.

James Friedman - Susquehanna

Okay, that makes sense; I was just like because I was confused. And then last question would be relative to your prior numbers you are getting a smaller percentage of your revenue from existing customers, don’t you think that would argue for a particular benefit in the pricing environment? So I guess if you could comment about the pricing environment relative to the existing customers and how that plays into Satyam, that will be helpful, thank you very much.

V Srinivas

In many of these instances when we are quickly ramping up for some new customers on significantly higher scales, there may be instances that we may undertake to do certain things that we may not necessarily be able to charge as much as in the initial period. And then therefore, whatever be the price increase that we may have got, the reflection of that would be seeing for a longer period of time. And this is also indicative of the fact that many of these customers when they become existing customer for our definition when we step into the next year will add to the growth of the existing customers that we may see. Does that answer your question?

James Friedman - Susquehanna

Yes.

V Srinivas

Thank you very much

Operator

Your next question comes from the line of Rod Bourgeois of Bernstein.

Rod Bourgeois – Bernstein

Hi, they are -- there is some confusion about your related fiscal ‘07 EPS guidance in dollar term based on the press release. And I just wanted to clarify, is the $0.86 of EPS guidance the upper end to the new guidance range or is at the lower end or is it just a $0.86 guidance however with no range being cited at all?

V Srinivas

Yes Rod, this is -- there is no range, it is just $0.86.

Rod Bourgeois – Bernstein

Okay, great, thank you for that, I wanted to discuss the impact that fixed price deals might have on your margins over the next year. Do you currently have a substantial amount of fixed price deals that have the low average margins, which could be improved materially over the next year to generate a benefit to the margin as you move into the upcoming quarters?

V Srinivas

We have not given guidance obviously for the next year. While that is the case, we do believe that there is set amount of room for improving the prices by bringing in greater efficiencies in managing fixed price. So that wouldn’t be a contributing factor as well as a step into next year.

Rod Bourgeois – Bernstein

And just to clarify is that a function of having some deals that are sort of under earning from a margin perspective or somewhat underperforming versus your target and then if you can actually turn those deals around then you get a material margin benefit, is that the situation?

V Srinivas

There are many contributory factors. There is not any one or two when it comes to fixed bid management. Therefore all of those together we believe provide us sufficient opportunities for enhancing the prices as we step into the next year in addition to any general pricing increases that we may come to have.

Rod Bourgeois – Bernstein

Okay, great. And then just a real quick question for Ram, would you expect the enterprise solutions business in Europe to continue to pose above corporate average growth in the next couple of quarters? Thank you.

Ram Mynampati

Yeah, Rod, we may not be in a position to give specific expectation by region. All we can say is that the enterprise business continues to remain positive for us. And we are quite optimistic about the growth potential of enterprise solutions across all the markets that we are operating in. I may not be in a position to share with you the predictions for a specific geography.

Rod Bourgeois – Bernstein

Okay, thanks guys.

Ram Mynampati

Okay, thanks a lot.

Operator

Your next question comes from the line of Bryan Keane of Prudential.

Bryan Keane - prudential

Hi, good morning. Just from the fixed contracts, back to that question, is there a percentage mix that you are shooting for kind of target range going in the future, I mean can that number get as high as almost as 50%?

V Srinivas

Our desire is to enhance fixed bid proportion. However, we have not been giving guidance on what that numbers would be while we have internal aspirations. It’s a fair thing to say that we will aspire to increase that proportion.

Bryan Keane - prudential

But you don’t -- you are not I guess with fixed price contract sometimes we think about extra risk in hat number and I think we worry about margins going forward but you guys seem to think more fixed bid is automatically better margin, is that true?

V Srinivas

If we take the overall scenario into consideration we believe that we are at a level of maturity of being able to deliver well on fixed bid that it could work to our advantage. So at a broader general level, yes, the answer is yes. There may be -- it goes without saying that each fixed bid has to be seen as a unique opportunity and the shift may have a variation in its configuration. But while that is the case as a general rule we believe that at the stage of our evolution this will work to our advantage.

Bryan Keane - prudential

Okay, and I just want to ask about large deals in the pipeline, what you are seeing in there and I had in my notes 15 to 20 large deals in the pipeline, how does that pipeline look?

V Srinivas

Ram has stated earlier but we have about 25 or so deals that we are pursuing which are at greatest stages. Many of them may be at a fairly early stage. But at least it doesn’t not so or instances where the engagement is currently more active. That’s where we stand. And our definition of a large deal will be anywhere between 50 -- above $50 million or $100 million.

Bryan Keane - prudential

Okay, yeah I missed that one, thanks.

Operator

Your next question comes from the line of Joseph Foresi of Janney Montgomery.

Joseph Foresi - Janney Montgomery

Hi, gentlemen, my first question here is just on the pricing side of thing. Is there any way that you can maybe quantified for us with a 1% increase in pricing would be, is there -- maybe give us some basis point impact of something like that on either in margins or parameter where in any way we quantify?

V Srinivas

Yeah, 1% improvement in the pricing should give us roughly around 60 to 70 basis points improvement.

Joseph Foresi - Janney Montgomery

Okay. And you did a nice job on the attrition side; I wonder if you could just give us maybe a little bit more color, I know you talked about it. Where you feel you know, what tools you thought were the most effective and can we expect that to continue to come down? Hello.

Operator

I guess the speaker’s line has been stopped. Participants are requested to please hold, we will just get this speaker online right away. Ladies and gentleman, please hold. The conference we will resume momentarily. Will you please go ahead, sir?

Joseph Foresi - Janney Montgomery

I was just commenting that you guys did a nice job in this quarter on nutrition side; I was wondering what tools you thought were the most effective in bringing that rate down and can we expect that to continue to come down?

V Srinivas

We have undertaken a number of measures, one of and the most significant ones was obviously a very impressive rate that we have given to our associates which resulted in 4.2% of the revenues being the extent of a rate that we have given. And therefore, that was certainly the most important one, which we believe that a number of other measures that we have taken for providing more conducive environment development for leadership initiative and having an opportunity for us. Then on to present to our associate’s participation in really exciting these going forward given that there are more number of transformation dues that we are doing. So there are quite number of those things you know, we are fairly confident that we will continue to improve on the retention front.

<Joseph Foresi - Janney Montgomery

And my last question here is a sort of a two part question. Number of players have talked about you know, doing an increasing amount of SAP, ERP work, my first part of question is -- are you seeing competition pick up in that area and on the foot side any areas that you guys are particularly targeting either on the vertical side or services side as an area of growth to move into and thanks.

Ram Mynampati

This is Ram Mynampati here. I think what’s important to note, first of all let me answer you directly the question of increased competition in enterprise applications. Given that there is significant potential entering enterprise applications, more potential than what has been addressed by all the players put together, you would expect increased competition and that’s what we see. Not because of any deficiency on the part of existing players, but because of the positive market that we witness. Second these, what we believe is that given the larger portion of the business that is being covered and addressed by enterprise applications space today, the potential for even greater contribution from companies like Satyam in enterprise space is clearly possible. So I would say that market size 135 is growing faster than the combined growth rate of all the vendors put together as far as enterprise application space is concerned.

So a more potent way to look at this is, are we growing in the same rate as which the market is expanding and my suggestion is that we are not. So there is a significant opportunity for us to grow. Even with the increased participation from many players. The second, we -- do we have any sweet spot, so clearly we have may sweet spots in enterprise applications, you know SAP continues to be our strong suite, even within SAP we have you know, specific focus areas which obviously I don’t want to go into, all that were we believe that we are as good as anybody else in the market. We are also very strong and there are warehousing and business intelligence not specific to any product, but the business solutions arising out of business intelligence and the warehousing. And that competency was strengthened with the acquisition and then the subsequent integration of knowledge dynamics in to our services practice. And so we have many sweet spots both product centric services as well as services that are the part of integrating the various products, and we are fairly confident of our competitive position in the market.

Operator

Our next question comes from the line of Alan Hellawell of Lehman Brothers.

Unidentified Analyst

Good evening gentlemen, this is Vidhan Bharati on behalf of Alan Hellawell, I just wanted to ask you if you could give some color on the kind of consulting assignments that you are doing, what is the percentage and share of revenues that you expect on this consulting in the coming two quarters and how much growth you expect in the SAP Oracle space and what is the kind of split between maintenance and implementation in the SAP Oracle space that you are seeing right now?

Ram Mynampati

Lot of questions, I’m not sure how many we can answer in the calls, but let me at least tend to re-consulting the questions. You know, traditionally what we are seeing is you know, we have been operating in consulting space for many years now, our contribution to our revenue from consulting solutions stands roughly around 6% to 6.5% or so, if you look at the consulting revenues that we generate out of the product centric consulting and that was percentage is up -- about 9% or so and that contribution is very healthy as far as overall contribution to the revenue is concerned but what is more important more than the percentage contribution from consulting is how much we’ve been able to influence the balance stream revenue opportunities arising out of consulting and how much of that is contributing for reduced cost of sales. I think these are the things that we don’t publish but those tend to be as important if not more important than the direct contribution to our revenue from consulting practice.

The type of opportunities that we are engaged in, in consulting stage include business transformation engagements, consulting in you know, defining the overall systems and solutions, architecture for the organization, implementation roadmap for many business solutions -- most of things and again this call probably is not the right forum to address the type of engagements we are involved in, we can certainly do that outside at next available opportunity.

Alan Hellawell - Lehman Brothers

Thank you.

Operator

Our next question comes from the line of George of Stiffel Nicholas.

Unidentified Analyst

Hi, thanks very much can you hear me?

Unidentified Company Representative

Yes.

Unidentified Analyst

Couple of questions if I could, first by my calculation I think bill receivables were up in number days quarter over quarters is there anything you can add to that.

V Srinivas

Not really George yes, there is a minimum increase, we will call it as a quarter on quarter abrasion from 77 days it went up to 80 days. We did not have to read too much in to it. Overall I think we are basically taking initiatives to bring it down as we are aware that it gives to be more than 100 days maybe couple of years back so while we brought it down considerably. So it’s just a quarter on quarter abrasion.

Unidentified Analyst

Okay, I would note that unbilled seem to come down so that’s positive. On going back to the pricing discussion and I got cut off briefly so apologies, if you discussed this but with regard to the discussion on pricing increase is that you are seeing, can you talk a little bit about productivity, expectations, embedded with those price increases.

V Srinivas

There are two things George, one is price increase as attributed to the contract negotiation or renegotiation. Second is increase that we are able to realize and the average price level based on the productivity improvements that we are able to bring about in the engagement that we are engaged in. You know there are obviously these two contributes substantially to influencing the average realized price. What we have stated so far is that on an average there is a 3% to 5% improvement in pricing that we are seeing in new contracts that we are signing and in many instances we are able to renegotiate contracts; similar price increase is being with next in renegotiation as well. Now what we have to do is convert and flow that price increase through to the average realized price the quarter had a marginal increase in our average price this quarter, our -- that’s what we will do to you know, make as much as price increase flows through to average realized revenue as we can.

Unidentified Analyst

Okay just to make sure that I am clear on understanding that the numbers that you are talking about are pricing increases that you are getting in terms of just the contract before you have to consider or you are looking at any productivity initiatives, is that accurate?

Unidentified Company Representative

That is accurate.

Unidentified Analyst

Okay great, and then I wondered -- just couple of housekeeping things I did not get all of the components of the margin impacts in the quarter, you know, its 400 basis point so but there is only referred by 200 basis point hit. And could you go to the components of that again please, thank you.

Ram Mynampati

Sure, there is a impact of 420 basis points because of increments that is the rate inflation. There is a positive contribution; because of reduction in visa expenses was roughly 125 basis points. And also we gained 30 basis points, because of rupee depreciation and another 30 basis points because of subsidiaries performance improving on the balance 40% or so, is because of various other operational efficiencies.

Unidentified Analyst

Okay, thank you very much.

Operator

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

Anthony Miller - Arete Research

Yes, good evening gentlemen, I am sorry to comeback to this price things again but I am a confused bit, because you said you are getting 3% to 5% both on existing clients and also on new clients, which you thought was in line with peers, but in fact most of your peers are talking about double that for new clients 5% to 10% and I would assume that high end of that range would be particularly if a skill is in high demand, which causes ERP and SAP in particular, I don’t really understand while you can’t come out contrast price increase is up to 10% on new clients. Can you give some thought on that?

B. Ramalinga Raju

Yeah, this is Raju here, there are two aspects on which, you know we have been commending, one is the new client has been and other thing is whenever the existing clients contracts come up for revision, on the existing clients as far as they are concerned when things come up for revision, there are many instances the contracts are not as state forward as we may like. Therefore you know, we have to derive certain price assumptions from the same. The range when Ram for example was saying that you know, it would be 3% to 5%, he is talking the about you know, overall average rather than saying that you know, that it is restricted to that band. Therefore and there may be instances where you not get a price increase which -- instances are much fewer. There may be instances where you could have got a price revision of 10% to 15% as well. But when we have to generalize and give a broad feed those are the numbers that we have talked about.

Anthony Miller - Arete Research

Okay, as I was specifically talking about new clients, but I assume what he said applies to new client increases as well.

B. Ramalinga Raju

Yes, it goes without saying that you know, when we have 500 clients with whom we are dealing currently and we are adding 35 clients every quarter then the variation would be quite high and therefore it’s rather difficult to summarize all that in a concise fashion. I would like to restate, taking all these things into consideration, all we are saying is that; number one, we are quite confident about the pricing environment for this year and then we expect the prices to be higher as we step into the next financial year.

Anthony Miller - Arete Research

Okay, and relating to enterprise you said or one of your colleagues said it earlier on but you were very confident about the growth in enterprise applications and so this is -- that has been coming down now, you seem to have stabilize at about 40% of --

B. Ramalinga Raju

No, in fact, it has been increasing, you know. We have for the first time crossed 40% of the revenues to be coming out of consulting and enterprise business solutions. So these were in fact, it has increased.

Anthony Miller - Arete Research

Well and actually I was looking at the percentage of sales across the whole business including BPO which is how your peers measure it, and you (inaudible) in fact it went down about 10 basis points on that premise. And the year-on-year growth is now lower than most of your peers, there I would assume that, in Satyam's case, it would be actually growing faster than this.

Ramalinga Raju

Yes, we have been reporting on the standalone percentages. We have -- all these were not taken into consideration for now, but generally speaking the growth has been quite impressive in our opinion. And we believe that we have been able to carve a niche for ourselves which is greatly recognized in the marketplace.

Ram Mynampati

Let me add to what Raju said. This is Ram, except I think one quarter I believe that for the last 14 quarters or so our growth rate in Enterprise Business Solutions is always ahead of the rest of the business growth rate. I think only one quarter where we have seen that -- one or two quarters that we have seen inline growth but -- including this quarter, our growth rate in enterprise business solutions in more than the growth rate of the rest of the business.

Anthony Miller - Arete Research

Yeah, just – I’ll take that off line, just one very last quick thing on Nipuna. I think you said all the subsidiaries were now positive but didn’t Nipuna record a loss?

V Srinivas

This is Srinivas here, these -- all subsidiaries together have contributed positively at EBIDTA level. At the net level, still there is a loss. And speaking specifically about Nipuna, it made an EBITDA margin of 3% this quarter.

Anthony Miller - Arete Research

Okay

V Srinivas

I request Venkatesh, who is the CEO of Nipuna here to give you a color on the Nipuna business.

Anthony Miller - Arete Research

Okay.

Venkatesh Roddam

Yeah just to add to what Srinivas said. This is Venkatesh here, I mean we are EBITDA positive and we intend to continue, I mean the outlook is to intend continuing this for the rest of the year. As far as you know, key areas of those concentrations are concerned, we are getting stronger in telecom and engineering services with a greater focus around KPO, animation and HRP. So the outlook appears to be you know, to carry on the trend that exist presently.

Anthony Miller - Arete Research

Thank you very much.

Operator

Your next question comes from the line of Rama Rao of RR Capital Management.

Rama Rao - RR Capital Management

Good morning gentlemen and thank you for taking the call. I want to first get a clarification, am I right in assuming that your EPS per ADS share in this quarter is $0.20?

V Srinivas

Yes.

Rama Rao RR Capital Management

Then you are guiding for the fiscal year and EPS for $0.93.

V Srinivas

Yeah.

Rama Rao - RR Capital Management

Is it 85?

V Srinivas

There are two cuts here $0.93 is you look at our investor link. $0.93 is excluding the stock compensation charge.

Rama Rao - RR Capital Management

I see - I see, okay. So if you take into account the stock compensation will be $0.86?

V Srinivas

Yeah, right.

Rama Rao RR Capital Management

Okay, it’s still with the excellent numbers you guys have. Okay, now -- can you give me a breakdown in terms of the contribution to your total revenue from various geographical regions like North America, Europe, Japan and Asia?

V Srinivas

Yes, I can definitely do that Mr. Rao, but I request you to go to our website because there are so many other metrics available there, but nonetheless I will give you these things which are asking. North America 65.87% and Europe 18%, rest of the world is the balance amount of roughly around 16%.

Rama Rao - RR Capital Management

I seem, okay. And in terms of the revenue growth, which region among this had the maximum growth for you in this quarter?

V Srinivas

I think there is a slight increase in Europe as far as growth rate is concerned. North America remains steady for the percentage contribution to our revenue. So there is a marginal increase on Europe and a marginal decrease in Asia.

Rama Rao - RR Capital Management

I see and how do this net profit margin in different region compares within themselves, are they comparable?

V Srinivas

Mr. Rao as a practice we are not sharing the geography wise margins. What we share with the street is the consolidated margins and the Satyam Computers consolidated at entity-level. So we will not be able to share with you geography wise profitability.

Rama Rao - RR Capital Management

What I'm coming to drive, in case, suppose US for some reason US economy slows down. Do you have enough diversification and margin of safety that you can continue at least some kind of the growth trend based in the Europe, Japan and Asia?

B. Ramalinga Raju

In the last four to five years, this is Raju. In last four to five years one of the most -- the impressive things in my opinion that has happen in the company is a building of a more spirit and well-balanced business model. We have found the proportion for -- the dependence on stock and clients declines from 55% to 35%, 34% or so. Similarly, we have reduced in the last of five, six years, that dependence on the North American market at one time it used to be more than 85%. Now specifically United States, which is not more than 60% or so and we have expanded our operations into Asia-Pacific as well as Europe quite significantly. Similarly, we have enhanced -- the proportion of revenue is coming from about five or six verticals to a more than 12 verticals now and we have -- in the horizontal practices, BPO, the infrastructure services and extended engineering facilitates, adding services. So in that sense we have an excellent global footprint and broad range of opportunities now than any time in the past. Generally we have also make sure that the revenues and margins are somewhat commensurate across various sectors.

Julio Quinteros - Goldman Sachs

And now I think -- ask you my last question. If you have to guess, what is your market penetration in the addressed Indian IT outsourcing?

B. Ramalinga Raju

We have registered about 3.5 to 4% as a percentage of our revenue of in India. We have seen that a fairly significant growth. So you are asking us what our market share is --?

Julio Quinteros - Goldman Sachs

Yes

B. Ramalinga Raju

In India.

Julio Quinteros - Goldman Sachs

Not specifically in India, the addressable market that you guys compete with like you, Infosys, Wipro and all these things.

B. Ramalinga Raju

Well you know, NASSCOM has brought out figures as far as offshore opportunities are concerned in the next five to 10 years. You know, one is talking about a few hundred billion dollars and we have barely scratched the surface in a particularly given area such as infrastructure of extended engineering services if there is concern.

Julio Quinteros - Goldman Sachs

If I read you correctly, your market penetration is still very small and one can envision that you can be a $10 billion revenue based company in next 10, 15 years?

B. Ramalinga Raju

I cannot comment about -- you know, we are finding it difficult to comment about next year, leave alone five years or 10 years. But just to take an example, a recent study that NASSCOM has conducted indicates that there is $750 billion of market in engineering services base itself. And significant proportion of that can be dealt with an offshore environment. So we are talking about a fairly sizable numbers which all of you are quite aware.

Julio Quinteros - Goldman Sachs

I congratulate the management team, very good job, and it is a pleasure to be your shareholder of the company. Thank you.

B. Ramalinga Raju

Thank you.

Operator

Your next question comes from the line of Ashish Thadani of Guilford Securities.

Ashish Thadani - Guilford Securities

Yes, good evening gentleman, a terrific quarter. The metrics and quarterly out performance which seems to suggest that Satyam may be experiencing very rapid ramped up from new clients, can you give us some flavor of how broad base this might be roughly in terms of clients, and also the time frame involved to get to a certain revenue run rates?

B. Ramalinga Raju

Ashish, what you are seeing as far as contribution from new business is concerned, is the reflection of revenue coming from all customers that have been added in the last 11 months or something like that. That’s what -- the way we categorize our revenue is, is revenues coming from any customers that have been with us for less than 12 months contributed to account it as new business revenue and the rest as existing business. So it is not to be seen as revenue generated from customers that we have added this quarter, so it is clearly cumulative effort of the customer asked in the last few quarters. At that time that is expected that they will be a ramped up leading to greater contribution from their business you know, we have going at the rate of adding about 30 clients a quarter. We will expect that there will be different ramped up schedules for each of these quarters. The aggregation of those ramped up schedule is what we are seeing as a contribution from your business is concern.

Ashish Thadani - Guilford Securities

Your clients are ramping out faster, you mean the one that you add in with in the last year or so?

B. Ramalinga Raju

Yes, they are if you look at the corresponding number in the last years if you look at say Q2 contribution from your business last year, perhaps our number now is higher than what it was last year. So that would indicate that your customers in the last one year are ramping the faster than the same case last year.

Ashish Thadani - Guilford Securities

Okay and just quickly switching to BPO. We’ve seen margins from a high of 24% to low double-digit figures from some of the companies. Have you targeted at broad level or let’s say, either 100 or 200 million run rate or longer term margin that might be achievable at Nipuna?

B. Ramalinga Raju

Yeah our desire obviously would be that our margins in BPO in the steady state should be no different from the IT services. We are in the early stages of ramp up, and therefore, it is understandable that we updated the currently lower margins. I will request Venkatesh to comment.

Venkatesh Roddam

I would just add to Mr. Raju just said by saying -- initially it had been, you know, growth rate in terms of sacrificing margin to be in volume and bandwidth, which is a process we are going through, but it wouldn’t be entirely incorrect your assumption to say those were the kind of numbers and margins in line of the technology business is what we are looking for.

Ashish Thadani - Guilford Securities

That is certainly very helpful. Thank you good luck.

B. Ramalinga Raju

Thank you.

Operator

Next question comes from line of Julio Quinteros of Goldman Sachs.

Julio Quinteros - Goldman Sachs

Hi guys, very quickly on the margin targets for the US GAAP consolidate statement, if you were to strip out the impact of stock compensation and RSUs in fiscal year 2007 guidance. What is your quite view on the operating margin?

B. Ramalinga Raju

The decline of 100 basis point is after factoring in the RSUs as I was mentioning RSUs contribute roughly 0.6% that is 60 basis points and that s what we are going to give on the world -- the first stock compensation charge coming because of the world charge, is roughly around -- about -- to be about 100 basis points.

Julio Quinteros - Goldman Sachs

Right, but if your strip those what’s your view on operating margins for fiscal ’07? So I’m working at an adjusted fiscal ‘06 numbers 20%. Where do you see fiscal ‘07 would be on an apples-to-apples basis excluding stock comp and RSUs?

B. Ramalinga Raju

No this 20 basis points, this margin you are talking of for FY06, after factoring in a charge of around $22 million. So the charge for the current year also more less around the same number so to the extent to the margins we (inaudible) 100 basis points declined either on apples to apples basis. Because it is not that the last year there is no depreciation on compensation charge. There is a depreciation of compensation charge.

Julio Quinteros - Goldman Sachs

2006 would have some adjustments already to incorporate the -- the FAS 123R charges but not the RSU charges. So I realize that the RSU charges are incremental when you look at fiscal ‘07 and then you know looking forward as one trying to strip all that out to look at your margins excluding all the non cash items and that’s what I am trying to gauge because I realize that you are saying that you know, when you factor everything else in 100 basis point decline but if you strip that out is your margin profile, also declining 100 basis points or the lateral, that’s the point I guess I am trying to get into.

V.Sreenivas

I think that is going to improve, if we strip out all these, the margins are going to improve, they are roughly around 50 basis points.

B. Ramalinga Raju

Okay, thank you.

Operator

At this time there are no further questions from participants. I would now hand the floor over to Satyam management for closing remarks.

V.Sreenivas

Thank you, this is Sreenivas here. I would like to thank every one of you for your active participation. If you have any further clarifications and questions please do contact us, or email us at [e-mail]. I would like to thank you every one of you once again.

Operator

Ladies and Gentlemen thank you for choosing Webex conferencing service. That’s concludes this conference call, thank you for your participation. You may now disconnect your lines, thank you and have a very happy Diwali.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.