Satyam F3Q05 (Qtr Ending Dec 31, 2005) Earnings Conference Call Transcript (SAY)

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Satyam Computer Services Ltd. (SAY)
Q3 2005-06 Earnings Conference Call
January 20th 2006, 8:00 AM. Executives January 1, 0000 ET

Analysts

Mahesh Vaze, BRICS Securities

Pramod Gupta, HSBC Securities

Mitali Ghosh, DSP Merrill Lynch

Anantha Narayan, JM Morgan Stanley

Pankaj Kapoor, ABN AMRO

Hitesh Trivedi, Edelweiss Securities

Mayank Tandon, Janney Montgomery Scott

Rod Bourgeois, Sanford C. Bernstein

Julio Quinteros, Goldman Sachs

Pratik Gupta, Citigroup

Rama Rao, RR Capital Management

(Indiscernible), JP Morgan

Ashish Thadani, Gilford Securities

Mike Stein, Thames River Capital

Anthony Miller, Arete Research

Divya, Motilal Oswal

Shekhar Singh, ICICI Securities

Sameer Goyal, Anand Rathi Securities

Ruchit Mehta, Ask Raymond James

Ashwin, (indiscernible)

Operator

Good evening ladies and gentlemen. I am Prathiba the moderator for this conference. Welcome to the Satyam Conference Call. For the duration of the presentation, all participants’ lines will be in the listen-only mode. After the presentation, the question-answer session will be conducted for participants connected to the India Bridge followed by a question answer session for participants connected to the International Bridge. I would now like to hand over the call to the Satyam management. Thank you, and over to Satyam.

Srinivas, Chief Financial Officer, Director of Satyam-GE Software Services Private Limited, and Director of Nipuna of Sify Limited

Thank you, Prarthiba. Good morning and, good evening to you all and thank you for joining us to discuss out third quarter 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 containing our future growth prospects, such statements involve a number of risks and certainties 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 the forward-looking statement that will be made from time-to-time by or on behalf of the company. I now hand over the session to Raju.

Rama Raju, CEO, Managing Director, Director, Member of Investors Grievance Committee of Nipuna

Thank you, Srinivas. Hello everybody. Thank you for joining us on the call today. I am pleased to report that our performance in Q3 exceeded the guidance. As per Indian GAAP Consolidated Financials the company reported a revenue of Rs. 1265.3 crore, a sequential growth of 9.6%. A noteworthy feature of Q3 performance was the 13.2% sequential increase in earnings, as per, per share on the back of expansion in operating margins for the second successive quarter. As per US GAAP, the company recorded a revenue of US$281.8 million, and an earnings per ADS representing a sequential growth of 5.2% and 9.7% respectively.

Q3 witnessed 35 customer editions the highest ever in a quarter. These include 6 fortune global and US 500 companies. The growth in relatively younger verticals was very heartening in Q3 and is indicative of our expanding footprints in these areas. Our strategy to broad-base the growth has resulted in increased number of customers with annual run rate of more than $1 million, $5 million and $10 million. As regards the macro environment there is continued confidence shown by customers in entrusting us with more opportunities to enhance business value. This is leading to increasing instances of consulting led engagement, that demand greater level of accountability and ownership for delivering business solutions. Customers are increasingly looking for globally diverse site and integrated solutions which are creating opportunities for us to partner with them across multiple geographies.

Our European and Asia-Pacific business is benefiting from this trend in addition to increasing penetration in the core market. Another key aspect of offshoring trend has been the increasing acceptance of Indian vendors in large multi-million dollar and multi-year contracts. Such deals require significant investments in terms of resources and the main competence. Satyam has increasingly competing in a number of such deals and is well positioned to capitalize on this trend. We are revising our annual guidance of course in light of continued positive momentum, and better than expected performance for the first 3 quarters of the current fiscal.

We now expect revenue as per consolidating Indian GAAP financials to be between Rs. 4780 crore and Rs. 4786 crore, implying an annual growth rate of 35.7% to 35.9%. Earnings per share for fiscal 2006 is expected to be between Rs. 30.31 and Rs. 30.36 implying a growth rate of 35.3% to 35.6%. Nipuna our 100% subsidiary reported revenue of Rs. 22.1 crore a sequential growth rate of 21.2%. The revenue guidance for the full year continues to be at US$18 million. Inline with Satyam stated objective to emerge as pure play IT Services and Solutions Company and to unlock the value of our investment, we diverted our demanding stake in Sify for a consideration of $63 million in Q3.

Our investment in Sify has generated significant value for our shareholders in Sify inception. The initial investment in Sify multiplied 23 times over a period of 10 years, I would like to place on the card our appreciation for the contribution of Sify’s management in building a world-class organization in ISD space.

I now request Srinivas to discuss the financial highlights for Q3.

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 share some highlights of our Q3 performance. The highlight of the quarter has Raju as mentioned is a 15% sequential growth in EPS, to Rs. 8.36, under consolidated Indian GAAP basis. This was driven by a sequential revenue growth of 9.55%, and the 93 basis point improvements in margins on a consolidated basis. We expect margin improvement to happen in Q4, and on a year-on-year basis, we stick to our earlier guidance of decline in margin, consolidated margin of less than 50 basis points. The parent company saw a 6.5%growth in volume while the building rates increased marginally compared to previous quarter.

Next manpower edition for the parent company was 950 including 690 freshers. We effect the net manpower edition for the year to be between 5,500 to 6,000. Parent’s company’s cash and bank balances increased by US$33 million during the quarter, this includes $US 16 million, net of tax and fields on sale of our entire stake in Sify, and an outflow of 13 million towards CapEx. We estimate that the CapEx for FY’06 would be around 50 to 55 million.

Nipuna expected to achieve revenues of US$18 million in FY’06 and they’re expected to cash breakeven in Q4. Turning to US GAAP, for Q3, revenue under US GAAP towards the US$281.84 million a sequential increase of 5.23%, basic earnings per ADS for the quarter was 36% almost to our guidance of $0.34. Thank you, and I now throw open the session for Q&A.

Question-and-Answer Session

Operator

Thank you, very much sir. We will now begin the Q&A interactive session for participants connected to WebEx India. The participants who wish to ask question, may please press “* 1” on your touchtone enabled telephone keypad. On pressing the “* 1”, participants will get a chance to present their question on the first in line basis. Participants are requested to kindly use only handset while asking a question. To ask a question please press “* 1” now.

Our first question comes from the line of Mr. Mahesh Vaze with BRICS Securities. Please go ahead sir.

Q - Mahesh Vaze

Yeah, I wanted to understand a bit of a business side on Nipuna. We had a net reduction in people this quarter, but even last quarter the addition was just 61 people. And we have a quite bit of processes 54 last quarter, 64 this quarter, but the precise number of people seems to be reasonably low. So what exactly is happening here, is the ramp up according to our plans or is that not moving as fast as we head on debut?

A - Rama Raju

Let me offer some broad comments and after that I would request Venkatesh my colleague CEO of Nipuna to respond to your question. We have done, by any standard fairly well, last year we grew by about 50% and this year we are growing at something like 75% to 80%. While that is the case, we have at the beginning of the year come to believe that the growth has to be more balanced and therefore we have been working on a model, where we are keeping the number of associates with the company lined with expected growth and the deals that we are able to have a better visibility on. And on account of that we have started improving in bottom-line terms. This quarter we will be cash breaking even. And we expect that things would turn quite positive for a bottom-line perspective next year. And this is being done while not taking our eye of this opportunity ahead of us, would you like to…

A - Venkatesh Roddam

Yeah, the only point that I would like to add is that in arriving of this balanced profile between voice and non-voice in the business, we’ve also been increased performance in productivity there by reducing the dependency on numbers rather than, rather focusing on actually delivery and productivity. So that’s the only point, I would add to that.

Q - Mahesh Vaze

So, last quarter to this quarter did the more procedures went-up by about 13, from 54 to 67 at the same time number of people came down by 34. So, what exactly happened meaning some large process went out, because…

A - Venkatesh Roddam

No, no, no, if you look at the detail of this 7, we added about 400 associates and lost about 436 associates during the course of the quarter. At the same time we’ve added about, 10 to 12, 10 to 13 processes during the quarter. So the bottom-line of that, these, the product mix in terms of our offering to shifting, if you look at added numbers typically from the voice side. So, in-taking on processes which are on the non-voice transaction processing side, our dependency to increase numbers by, in a large numbers is going down. So the client profile is going through a shift in terms of focus shifting towards transaction processing and bringing about the balance between voice and non-voice businesses.

Q - Mahesh Vaze

Would you like to offer some comments on the animation business?

A - Venkatesh Roddam

Yeah, our classic example -- well our classic example is the -- we recently set a footprint on the animation space, which in competitive terms do most of the other business in the traditional BPO space has a requirement relatively far lesser number of people, and generating far higher revenues for us.

Q - Mahesh Vaze

Okay, secondly this is question for Mr. Srinivas. So CapEx still lag that of some of our peers. These guys are bigger, maybe some of them are more than twice your size, but at the same time, the spend $250 million, $300 million per annum, our standalone balance is still shows CapEx of around 50 crores per quarter, which seems low because such as some of the other companies went 250 to 300 crores a quarter. Why is this difference?

A - Srinivas

Yeah this is, Mahesh as I rightly also alluded in terms of the directly dependent on the relative sizes, as the number of people we are adding and number of people some of our competition adding maybe different, because we allotted altogether a different base. So, what I would like to mention is we are basically investing in the infrastructure as for our manpower plan and whatever you are seeing roughly around $40 million is what we have spend in the first 3 quarters. And we are saying for that entire year we will be spending up to 55 million. This is basically to create facilities for the 5,500 to 6000 odd people we are going to add.

A - Rama Raju

We are, just to add to what Vinod has stated, this is Raju here. We have taken an approach that we should not make investment in infrastructure beyond what is necessary and what we mean by this is that we have in different cities taken our own premises and then taken an approach of keeping the shelve ready and then we have prepared solutions for quick readiness of the places, and therefore, once you have the structure in place it takes no more than 3 to 4 months for you to attend to any unanticipated requirements, and we believe that the planning that we have done is in tune with not only growth but also some unanticipated spot in business. Also we are not compromising on the business unspoken and at the same time keeping our costs which are either direct or indirect on the check.

Q - Mahesh Vaze

So, I do very, well I appreciate the fact, what I was just alluding to was lets take a case of Infosys, we should, perhaps this year, would do about 2.1 times revenue of Satyam, 2.1, 2.2 times. But it is spending about 4 times, full 4.5 times the money on CapEx. So that bigger difference, I was just talking of it from a relative perspective.

A - Rama Raju

Yeah, yeah I would like to said that we may not want to comment in terms of what our, other companies maybe choosing to do, each company has its own strategy. We believe that adopting a strategy of being ready to take opportunities in the marketplace and keeping CapEx and other cost as low as possible is not a bad strategy to have and we have found what we are doing to work really well.

Q - Mahesh Vaze

Okay, fine enough thanks a lot on the answers.

Operator

Thank you very much sir. Participants are requested to kindly restrict to one question in the initial round of Q&A session.

Next in line we have Mr. Pramod Gupta from HSBC Securities. Please go ahead sir.

Q - Pramod Gupta

Hello good evening everybody, I just wanted to understand one of things on…

Operator

One minute Mr. Gupta, sorry to interrupt you sir.

Q - Pramod Gupta

Yeah, hello.

Operator

Could you be a little louder?

Q - Pramod Gupta

Yeah, sure. Just wanted to understand sir, what has happened on the margin side, our margins have improved on a consolidated basis, only 93 basis points. Though, the rupee depreciation of 3.7% and then there was onside offshore mix exchange also and utilization also improved marginally should have led to a better margin expansion. Could you please explain that, and as employee cost has really shot up quite well in this quarter about 48% in the rupee terms, so what has actually happened, though our work force addition is only about 4.4% on an incremental basis.

A - Srinivas

Yeah, Pramod on the margin front, as you rightly mentioned we have seen, alone improvement in various parameters, the noting factor has gone up and the offshore mix has gone up. And also the 300 saving has happened, and there will be depreciation, has also helped. This all, all these things really when we are helpless to invest into our business and net-net we have posted around 93 basis points improvement in the margin and also we are saying that Q4 we are going to achieve a quarter-on-quarter improvement in the margins and for the year also, in the margin situation, we are giving it at what we’ve said at Q3 level, there is a 150 basis points. This is, all this after absorbing the 3%, within a 3 session we have seen from the quarter end to till date, to the date of guidance, the rupee already appreciated by 3%. So that means so we will be moving roughly around 80 to 90 basis points. So we are kind of -- some of the improvement we have seen in the current quarter are going to help us, and overall I think year-on-year basis we will be achieving our stated objective.

Q - Pramod Gupta

Sure, but what will happen in the next quarters, because next quarter rupee may actually reverse some of its gains and also your employee addition will lead to utilization fall, and so how will, we still be able to maintain margin, what will be the driver of maintaining margin or improving it?

A - Srinivas

So, that is was what I was mentioning, already our guidance is at 44.20, so to that extent, we have already absorbed a 3% rupee appreciation and the consequent impact on our margins, after that we are giving this guidance that our margins will quarter-on-quarter improve, and also the yearly numbers will remain intact.

Q - Pramod Gupta

No, that I understood sir, what will lead, how will you do it, basically.

A - Srinivas

Yeah.

Q - Pramod Gupta

What are your mechanisms?

A - Srinivas

Yeah, the improvement whatever we have seen in the current quarter, the emphasis on, for example the learning factor improvement, the offshore missed the levers, all the levers that came to our rescue in Q3, will definitely are available to us in Q4 as well, while we will not be able to talk specifically about our strategies. But definitely I think we are on track of delivering whatever we are saying.

Q - Pramod Gupta

Okay. Thank you, sir and all the best.

Operator

Thank you, very much sir. Next in line we have a question from Ms. Mitali Ghosh of DSP Merrill Lynch.

Q - Mitali Ghosh

Hello.

Operator

Yes ma’am, please go ahead.

Q - Mitali Ghosh

Yes, hi thanks. I wanted to understand from Ram, the situation on the top 10 customers. On the one hand we’ve had a pretty strong expansion from the top customer. And at the same time we have had decline obviously in some of the top 10 customers. So just wanted to understand, what happens in turn and, implication from, these customers going forward?

A - Rama Raju

Yes Mitali, this is Ram, one of things that we have been pointing out yearly as for as business trends are concern is a much broader base of customers that we can count on, that will give us a revenue, as we have explained in the earlier statement Srinivas made, there is a significant improvement in the customers that are 1 million customer, 5 million customer and 10 million customer. Not only that the 10th largest customer revenue has gone up quite substantially in the past few quarters. So much so that there is a subsequent improvement in the customers that, are part of the top 10 from today. Now there is an expected churn as far as top 10 customers pool is concerned. Our customers has been falling and out of the top 10. So, we’ve coupled with the fact that the amount of revenue that is required to be qualified for being in the top 10 has gone up. You would expect that, the contribution from top 10 will go down, but there will be a broader distribution of revenue that would account for the growth in business. But to me the fact that the contribution of top 10 to the overall revenue has come down is a very positive sign, as long as we continue to grow the business. So in that sense I would request you to view that positive then that’s the way we are doing it. As far as the top customer is concerned, while there is a marginal increase quarter-on-quarter, that is in my opinion well within the business plan we have for that account. And we’ve continued to view that relationship very strategically to us. And these kinds of variations quarter-on-quarter are expected. So overall the outlook hasn’t changed as far as our expectations from this customer is concerned.

Q - Mitali Ghosh

So Ram, if I understood correctly, there has been some amount of, decline in some of the top 10 customers, I understand your point on the broader base. But just so that we understand are there any trends that we should understand in these large customers, in terms of spending going ahead?

A - Rama Raju

First of all, just to clarify what we are saying is there is a decline in growth percentage. It’s not an absolute terms some of these cases I think the….

Q - Mitali Ghosh

Sure.

A - Rama Raju

As we differentiate that, in that sense as long as the customers continue to grow, it depends on a number of parameters, some projects coming to an end technology -- new technology is being identified for, future value creation. It’s very difficult to project the trend across a fairly diverse set of customers. So far we have not been able to identify any specific trend that would be alarming to us, as long as, there is a broader distribution of revenue across customers, and this applies not only to the top 10 customers, but perhaps applies to market segments as well, as we are quite comfortable with the numbers that we are seeing. We have done some analysis obviously we can’t discuss customer-by-customer on track, while that is the case, suffice to say, that in none of the top 10 customer incentive in absolute term on an yearly basis we have seen any decline. And in that sense it’s very positive.

Q - Mitali Ghosh

Right and just one more question on, I just wanted to get an update on the enterprise solutions area, what are trends you are seeing there in terms of demand as well as pricing?

A - Rama Raju

Yeah, Mitali this is Ram. Again this quarter we have seen the enterprise business solutions marginally, grow faster than the rest of the business I think that was significant than the previous quarters. This quarter it hasn’t being that significant. And nevertheless there is growth. What we are seeing is more a qualitative observation as far as the enterprise business solutions are concerned. There is a shift toward our consulting led opportunity, that are creating downstream volume of our enterprise business solutions. That seems to be on the rise, I think it talks about two things, number one our enhanced abilities in the consulting space, the fact that we are able to subsequently leverage our consulting capability and subsequently that we have in enterprise business solutions, towards significant value creation. So beyond product specific implementation, beyond integration of products, we are increasingly -- being of to engage, in identifying opportunities for value creation in a constructive way and take ownership and accountability for delivering that value. That is probably the qualitative difference that we are seeing.

Q - Mitali Ghosh

Right thanks.

Operator

Thank you, very much ma’am. Next in line we have Mr. Anantha Narayan from JM Morgan Stanley.

Q - Anantha Narayan

Thank you and good evening everyone wish you all a very happy New Year. My question was on the enterprise business solution side of Satyam, has obviously done extremely well, and the company build a very strong brand equity out there. But from a longer term perspective, are you a bit concerned about the business concentration from the segment is almost like 40% of your revenue now. And in the past few years we have seen some sort of periods of downturn for enterprise business solutions as a whole globally, is quite likely that that period of downturn may come going forward, as well as does that give you any cause of concern?

A - Rama Raju

Anantha this is Ram. I think we need to put things in perspective as far as enterprise business solutions for our business is concerned. To us it is not the same as product specific services. We look at enterprise business solutions as significantly different and beyond product specific implementation. To that end they’ve not directly proportion to license sales, or direct product sales. We also think that there are couples of other trends that are noteworthy in the market. One, the capabilities delivered by a package vendor or an enterprise business solutions vendor that capability is being enhanced quite substantially. Today many of the off-the-shelf products would cater to a large portion of business needs of our enterprise. To that end, the likelihood of customers adopting existing packages or existing solutions whether it is in the form of one package or integrated solution. That probability is higher today in the market. So to that end, to the extent that those vendors continue to invest in expanding the areas we have gave solutions are relevant, I don’t see that as a major concern as far as a downturn is concerned. Second, enterprise business solution space in our experience has a value chain its own, it is not that is all defined ahead of time, there are opportunities for consulting engagements, there are opportunities for you to be innovative and creative and defining what solutions would address the needs of the customers much more effectively, putting together capabilities of various products and services. So it depends on what clients do you get engage in the value chain of enterprise business solution, that also defines the limit to which you can engage. So, while there is some influence related to whole product vendors are doing to the extent that you are operating at a business solution that will, we believe that that market to continue to be attractive.

Q - Anantha Narayan

Thanks and just finally one small data point from Srinivas, can you give us a cash loss of Nipuna in this quarter?

A - Srinivas

Cash loss, 1.8 million….

Q - Anantha Narayan

1.8 million, is it?

A - Rama Raju

1.3

A - Srinivas

1.3 million

Q - Anantha Narayan

Okay, here my only question was, you are roughly adding about, $0.5 million to $1 million of revenue each quarter for Nipuna, so how would we able to cash breakeven in the next quarter?

A - Srinivas

This is on the back of improvement in the top-line we are looking at for the next quarter. That’s should basically help us in retaining the cash ability on detritions (ph).

Q - Anantha Narayan

Okay thank you.

Operator

Thank you, very much sir. Next in line we have Mr. Pankaj Kapoor from ABN AMRO. Please go ahead sir.

Q - Pankaj Kapoor

Hi, congratulations on the numbers. Just want to get a clarification on the Forex part. If you can run us through how has been the Forex performance, you see at the gain 2.6 crores that you have mentioned. Could you run me through break up of that please? And b, if you can give me some sense in the Forex policy going forward, in terms of how you are looking at being the Forex, forward covers and options and what is the average pricing for that?

A - Srinivas

Sure, sure. On the first question on the forward contracts we incurred a loss -- looks around 19 crores or so, and on the foreign currency effects the translation we gained around 22 crores, and net-net we got a gain of around 2.6 crores in this quarter. And on the policy at this point in time we have total forward contracts of around $270 million at an average rate of around rupees 44.5 approximately. Out of this roughly 50% are in option and 50% are in forward. Our going forward strategy is to basically move towards options because as you know option gives us a two way hedge, while it caps are upside and also it will also cap our downside. So to that extent we think options provide us a very efficient hedging policy that is what we are going to do.

Q - Pankaj Kapoor

And all these are in dollar dominated options and the currency all we are looking at other currency also?

A - Srinivas

These are the mixers, predominantly it is a dollar, we have also some cross currency.

Q - Pankaj Kapoor

I think the options are essentially plain options or are we looking at some kind of different derivative growth?

A - Srinivas

No, no, no. All of them are options we are not getting into derivatives.

Q - Pankaj Kapoor

Okay and just one further question on the pricing front. We have been looking at a flat pricing for the past quite a few quarters, what is the view going forward, and what you think will be drivers for any kind of a pricing improvement?

A - Rama Raju

Yeah, Pankaj this is Ram. What we have witnessed in the market is that, in many extend, new customers coming in and partnering with us at present we are coming in at higher than average rates. And we have also noticed in the last few quarters that increasing incentives rate we are able to successfully renegotiate the existing customer, the existing contracts for higher prices. While that is the case, the volumes have to catch up in order to positively influence the average price. I would expect that to happen, but our outlook at this point is that pricing would largely remain at current levels and stable for Q4.

Q - Pankaj Kapoor

Fair enough thanks a lot and all the best.

A - Rama Raju

Thanks.

Operator

Thank you, very much sir. Coming up next is a question from Mr. Hitesh Trivedi with Edelweiss Securities. Please go ahead sir.

Q - Hitesh Trivedi

Yeah hi, my question is with regard to the offshore proportion of revenues for last about 7 quarters odd consistently be proportion has gone up. So my question is how do you see it going forward next to the three quarters what is the sense you have about, about this statistics? Thanks.

A - Rama Raju

We, Mahesh we will not be able to say any specific numbers here, but it is our -- pronounced the strategy to increase offshore component. As I rightly pointed out you are saying quarter-on-quarter improvement there. Going to be our focus area continues to be our focus area going forward. We can, we maybe able to see some improvement there, other than that we will not be able to give you any specific numbers.

Q - Hitesh Trivedi

Sure, I’m not looking for numbers I just wanted to sense from you that if you look at your top 50 to 60 counts and, kind of work that you think you will be doing for them over the next 2 to 3 quarters, with that at the extent on offshore you think should be continuing?

A - Rama Raju

Yes, Mahesh definitely I mean the emphasis moving the work offshore was not just talk we see overall that is one of the things we give telling over business leaders, that definitely is one of the very important initiatives we are focusing on as an organization.

Q - Hitesh Trivedi

Ram if you could offer some comment about, the client that you have added in the year-to-date in the past three quarters, if you could give some flavor as to what verticals have coming from and whether you think some of them will be converting into world larger relations for you going forward? Thanks.

A - Rama Raju

Yeah, Hitesh, in general most of the verticals that we are engaged, it is an extent the service offerings that we provide to the verticals, whether they are addressing the specific business needs for those verticals or not. Our perspective the endeavourer to manage every relationship in a passion of maximizing opportunities from that relationship we’ve independent of the vertical. But having said all that, many of the existing verticals that has been matured of across two years like financial services actually, the relationships are already at a fairly matured level, as for the opportunities will continue to come from the investments that we have made in the relations. For the emerging verticals like, healthcare, like retail and travel and transportations, as long as the customer add from these verticals continue to at the safest which it is, there would be greater opportunities for us to convert some of these into partnerships.

Operator

Hello, Mr. Trivedi?

Q - Hitesh Trivedi

Yeah thank you.

Operator

Okay sir.

Operator

Thank you very much sir. At this moment I’d like to handover the slot over to conduct the Q&A session for participants at WebEx International Bridge, thank you and over to April.

Operator

Thank you very much. We will now begin the Q&A interactive session for participants connected to the WebEx International Bridge. Participants who wish to ask question please press “*”, “1” on touchtone enabled telephone keypad. On pressing “*”, “1” participants will get a chance to proceed their question in a first inline basis. But this is order by to please limit their questions to only one during the initial Q&A session. Also all participants are requested to use handset while asking a question. To ask a question please press “*”, “1” now.

Your first question comes from the line Mayank Tandon with Janney Montgomery Scott.

Q - Mayank Tandon

Thank you congratulations on a good quarter. I just had one main question which is, your competition stock about potentially having to lower utilization to be able to service large deal opportunities. Now your utilization obviously is significantly higher than some of your peers which maybe a function of your pyramid. If you could just comment on that as you look forward, how you see utilization shaping out, of your offshore onsite business segments? Thanks.

A - Rama Raju

As an organization we are giving increasingly more important to take advantage of our entry level recruit and train them well. So that we can keep our cost under control and at the same time deliver a higher level of value to the customer. Therefore, going forward while we will continue to give important to high utilization rate, we would be also preparing the organization of our higher level growth erasing out of larger deal. We, therefore to comeback to your question, we will continue to give importance to managing the utilization of existing resource as well. And at the same time seek creative solution of offer playing with the mix of our resources that we would come to have.

Q - Mayank Tandon

So, let said what is the impact on margins as you look out over the next maybe 12, 24 months as you make this change?

A - Rama Raju

We have unfortunately we are not in a position to give the guidance for the next year. These are the things that have been factored into the current quarter’s guidance and next year we are quite confident that we will be able to share our, scale which would be arising out strategies converted into basic numbers.

Q - Mayank Tandon

Finally could you just comment on the hiring, I mean I didn’t hear an update on the guidance for this year, is it still 5,000 to 55,000 gross hiring fiscal 2006?

A - Rama Raju

As we are enhancing the guidance in Satyam parent, Satyam animation, we have given an enhanced guidance in terms of people at a net level to increase for the years to 5,500 to 6,000. About 500 people we have added to the guidance and, and that would place us at fairly high level in terms of any quarter addition.

Q - Mayank Tandon

Okay, and if I could just get clarity on the forex benefit below the line on the US GAAP statements from Srinivas, that would be helpful. Thank you, and again good quarter.

A - Srinivas

Mayank, what is that question.

Q - Mayank Tandon

The product, can you, to other income line below margins and upon US GAAP statements, can you quantify the quarter sale?

A - Srinivas

As right now I believe its 4.7 million benefits.

A - Srinivas

Four point yeah, that is what I was explaining earlier under Indian GAAP, that is primarily the foreign currency, as such the translation gain roughly 4.68 million and we had a loss of 4.27, it is basically because of our forward contract, net, net we have a gain.

Q - Mayank Tandon

Okay and that gain is…

A - Srinivas

Roughly around…

Q - Mayank Tandon

4.7 or the net gain is…

A - Srinivas

Net gain is roughly around 0.5 million.

Q - Mayank Tandon

Okay.

Operator

Your next question comes from line of Rod Bourgeois with Sanford C. Bernstein.

Q - Rod Bourgeois

I wanted to ask a specific question about the growth in the enterprise business solutions unit. Your growth in that unit has been out performing in recent history. But in the December quarter it grew in line with the rest of the business. And I just wanted to enquire as to whether there was any, sort of timing issues in the quarter that might have affected the growth in that unit; whether there was seasonality there or, large client having it to grow slow down. We really want to get engaged and whether is any slow down at all occurring in the year key related work that you are currently doing.

A - Rama Raju

Yeah Brad this is Ram. Enterprise business solution business has grown in this quarter as well but broadly in line with the rest of the business, what we have seen as for a macro trends and the impressions that we gather from our clients are concerned. Point 2 the business trend continue to be robust and we look forward to grow that margin resembled the growth that we have experienced earlier. There are obviously some things happened in any quarter, some tend to be market specific, some tend to be vertical specific but there is nothing but, but we have witnessed in this quarter that we can establish into a trend that will influence that number. Overall we continue to remain positive in that market.

Q - Rod Bourgeois

Ram, would you agree that the offshore year key market segment is one of the stronger market segments in the industry? It appears that, that’s been true in recent history and we’ve certainly had the view that’s continuing.

A - Rama Raju

Yes, Brad I do agree with that.

Q - Rod Bourgeois

Okay, and where there any specific timing issues or seasonality or, slow down issues with top clients that would have affected, revenue growth in general in the quarter that we should, we should, that are, material and no worthy that we should understand.

A - Rama Raju

As I said Brad there are probably nothing that, that I would look at it an alarming, there are always going to some situations like, time shutdowns in case of their manufacturing industry or, some purchase are just needing to be, differed to next quarter because at the year end issues, that are something slightly better, but those are not major issues that would impact future growth prevention in the market. So, I would, we were not particularly concerned.

Q - Rod Bourgeois

And I was eager rush; rush getting at something that would be a alarming is that your, your sequential growth for December was, just about 5%, that your guidance for next quarter is, is fairly strong and so I just wondering if there was anything like it was causing, December growth to be, potentially materially low, materially lower than what you are going to see in March.

A - Rama Raju

Again there are something’s that we have factored in obviously when we came up with guidance of the March quarter and that has something to do with what happened in the December quarter as well what do we see happening likely in March quarter. I am not sure that there will be any thing more that we would like to add.

Q - Rod Bourgeois

Alright thank you.

Operator

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

Q - Julio Quinteros

Hi guys. I just wanted to, to talk a little bit more about the, the margin improvements and just get some clarification from Srinivas. The, the expectation going into the fourth quarter, it sounds like it is for continued improvements in operating margins and I believe that you are, that you are comfortable with that but I guess it was trying to a little bit of better hand along this. What exactly you can leverage that where you, where you still have some luminous, you look at what has, has helped you had a little last three quarters. How much more room is there for continued margin improvement into the March quarter within the certain normal leverage that we would expect here to see on, helping your margins around.

A - Srinivas

Well Julio, Srinivas here in addition to various deliver sites talking about that it is improving the learning factor and of sure on site makes and fixed bid project demands, down based things in addition to, out of this we have mention a little bit ago, one more liver which is available to us is the performance of our subsidiaries. As all of you would observe this quarter the subsidiaries performance and they are less than anticipated level. That’s one way for how we bank our margins in Q3. That as it, when it comes to Q4 they are also expecting the margins to improve there from the subsidiaries, that also is another liver in addition to what all I mentioned earlier.

Q - Julio Quinteros

And that’s, that was about a 100 basis points that have driven the current quarter. Is that correct?

A - Srinivas

No, I don’t think it is 100 basis points. For us to achieve the target of, the less than 50 basis points decline this is what has been our target from the beginning and that is what we told all of you last quarter as well. For us to get to that target whatever improvement that were required in Q4 I think we’re quite comfortable at that. I don’t think that it requires 100 basis point improvements from the current level. So…

Q - Julio Quinteros

And I understand, but I am just saying in the current quarter I added up all of the profits and losses that you reported to all of your JVs and, and subsidiaries and I am looking at about a total loss of roughly $2.69 million which is about 0.955% or about 1% point of drag in the current quarter. Is that correct?

A - Srinivas

Absolutely, you are right. But whether entire -- the drag whether recover in one quarter, 35%. That is what I am saying; I need not have to recover that in, in one quarter. What I require to do is my objective. Is that much less down thing, but to that extent the point I am trying to drive home is that well that is comfortable with the, with guidance we are talking.

Q - Julio Quinteros

Okay great. And then on, just to reiterate and then trying to just connect a couple of things here. When we look at the performance of manufacturing and banking and then obviously when you look at the performance of the top 5, top 10 just you cant come back to your point, is there some connection, kind of coming back to the previous question with regards to seasonal spending patterns here, lost contracts or anything along those lines that would be cause for concern as you go forward.

A - Srinivas

I’d like to just offer one comment, our last quarter had about 3% less number of working hours as compared to a quarter before that, not that, that commenting the past in the previous year and if you, if you can change that was from December quarter have, had other positive factors as well. But one of the thing that clearly was that we had lesser number of working hours, given the quarter I would request Ram to add any other factor.

A - Rama Raju

Yeah Julio, as far as verticals that you’ve talked about, we attribute that to the differences you would quarter, variations of performance I, I don’t see any physical trends related to this quarter has, as far as the vertical performance concerned. I said we acquired confident of delivering the guidance that we suggested for Q4.

Q - Julio Quinteros

Okay, perfect and then I’ll just say if I can guess a one last one and could you just address the turn over in the current quarter.

A - Ramalinga Raju

The turnover in manpower, the attrition level have gone up have gone up, that have gone up throughout the industry and as we have also been fully effective party, we are not too pleased with the fact that the attrition levels are way behalf. We would like to work throughout the, efficiency of bring them down. The numbers of measures that we have taken, that is, certain things which are not directly in our control they are rising out of, increasing demand for resources in India, but there are other factors which we believe are in our control and the, we are working on the same.

Q - Julio Quinteros

Okay, thank you.

Operator

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

Q - Pratik Gupta

Yes, hi, congratulations on the quarter. I just have one quick question on the outlook for your large deal strategy, what you guys are doing about and especially given the some of your larger competitors are that Inaudible I just wonder if you elaborate a bit more on what specific steps you’re taking at the sales level, at the management level, and at the operational level in terms of your larger deals outlook strategy.

A - Rama Raju

Yeah Pratik this is Ram. As I am sure you are aware by now we have brought in significant leadership to address the large deals efforts that is past quarter has joined us couple of months ago. We’ve been very actively involved in not only addressing this market segment from the pipeline building perspective but also declining the processes, the requirements for us to be a significant player in this market, we have a team that is working on, getting the organization ready in order that we effectively competing this market. What we have seen in the last couple of quarters is that certainly the deal sizes have become larger and that we have, we have been participating in our share of lager deals and we also believe that we have recognized what it takes to get the organization ready to participate in this deal. Without going into many details of what all the processes involve, but we feel very comfortable about our ability to complete as well as our ability to deliver.

Q - Pratik Gupta

So is this something which you would say, is the fairly matured stage that now you are, are ready to go out there and win on the RFPs.

A - Rama Raju

We believe so, as I said we have been working on a few large deals and our experience in, in participating in this deals seem to indicate that we have established.

Q - Pratik Gupta

Okay and just a quick follow up question on a separate issue on you Sify stake sale you’ve got a quick cash of $363 million. Just wondering in terms of your overall outlook on the cash balance what you, is seems to be your optimal cash balance, the plan to any return of the excess cash?

A - Srinivas

Managing the liquid assets is what is our saying is clearly one of the more important strategic issues that we are constantly very closely monitoring. We have a, being giving fair amount of importance to inorganic growth and that would continue to be our approach. And other than that, what other things can be done so that the shareholder value can be enhanced, if something that’s we are very much in tuned with, we are not in a position to offer any different department for you on that.

Q - Pratik Gupta

Okay I do, on the M&A part, are you sort of suggesting that you will be looking at larger sized transactions going forward?

A - Srinivas

At this time we are not rolling out any possibility, we are, it was without saying that the, assertive that the mergers and acquisition for growth in our organization is fairly activate in evaluating various possibilities.

Q - Pratik Gupta

Okay thank you very much.

Operator

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

Q - Rama Rao

Good morning guys and thank you for taking the call. I have a quick question. If I compared your 9 months earning EPS and according to the US GAAP and the ADS that is substantial if then, is it that how many of your each ADS compute with the each of with these shares in India.?

A - Rama Raju

Yeah basically at other 2 equity shares in India make one ADS.

Q - Rama Rao

Okay. Do you see that? Okay and next question. We have seen in the last three quarters went up all in by 25% on the rumor that IBM is going to acquire you guys, any truth in that rumor.

A - Rama Raju

Well, we have provided a clarity on this issue while in the past we refrain responding to rumor, we have stated that never in the past with any of the large global systems integrator, have we had any dialogue are shown any intend directly or indirectly nor do we intend to do so in the near future because we do not believe that it is in the first interest of the shareholders. And I believe that more that amply clarify to our position.

Q - Rama Rao

Okay and now if they are, here people are anticipating a slowdown in the US economy, if US economy slows down, still you can keep up with the 30%, 40% annual growth according to your internal project.

A - Rama Raju

We are not giving guidance beyond this quarter. So far our experience in the last several quarter is, quarters indicate that the markets are quietly set to, to accessing on the services that we have to offer and we have not so far seeing any trends that indicate otherwise.

Q - Rama Rao

Okay, thanks for the information. Bye.

Operator

Your next question comes from the line of (indiscernible) with JP Morgan.

Q

Yeah hi and good evening everyone and congratulations on decent performance, my first question is actually is the lift of volumes of the last four quarters and for some reasons we have seen as your declining friend, if you look at your volume growth.

A - Srinivas

Hello?

Q

6%. Hello.

Multiple Speaker

A - Srinivas

You may have to repeat your question that is some problem with the line.

Q

Is it better now?

A - Srinivas

Yes. Before could you please repeat your question? And if you are on the…

Q

Is was just saying if you look at your volume growth trend over the last three quarter and as you grew volumes by 9% or 8.7% in the June quarter and around 7.1% in the September quarter and now the number is close to 6%, so actually a declining trend of growth in environment which actually pretty strong, it there something to read out here, or should we expect this just to move back up going forward?

A - Srinivas

Yeah I don’t believe that there is a decline in trend in volume growth it is a number that, yeah, we’ve have if you took at, yeah, if you look at Q1, there is about a 9% volume growth, in Q2 its about 8.7% fairly consistent, only this quarter we, our volume growth is about 6.5%, providing that is certainly less than what we had in Q2. I don’t know whether we have any, any parameters that would lead us to conclude that there’s a declining trend, we are confident of delivering fairly consistent performance that our revised guidance offered fairly indicates that confidence level.

Q

Sure sir. And then secondly on the subsidiary margin that you touched upon that little bit, if you look at your consolidated and standalone numbers, there is a GAAP of around 150 basis points on the EBITDA side and I am sure you are trying to get the subsidiary margins up but I think, I just want to ask that over what timeframe do you expect that this gap will close out completely is it 1 year, 2 years or 3 years?

A - Rama Raju

Yeah that is difficult to predict but one thing which can I could, I want to add-on is that there is one of the levers we have improving the subsidiary performance and as we were mentioning Nipuna is going to cash breakeven in Q4 and after that do well in, into next year and also the other subsidiaries like City Soft and Knowledge Dynamics and also right now into the integration into Satyam Mainstream, it is already couple of quarters since we acquired them so to that extent we also expect them to perform well, so I mean we want to, we want to bring them into profitable zone soon as or later other than that giving you any timeframe maybe difficult. But we will bring into profit zone very fairly quickly.

Q

Sure sir. And just very finely can the management comment on the infrastructure management space that’s been huge growth area for some of your pier group and right now Satyam has possessed only 4%. So also going forward, what is happening in the space and what’s your expectation and that’s my last question, thank you.

A - Srinivas

Yeah. Clearly, this quarter we have seen marginal increase as far as contribution from infrastructure management services is concerned, we continue to be positive about the segment we’re making investments in enhancing the maturity of this space, we are very focused on doing what it is to grow in the space, I think its just a matter of being persistent with the strategy we expect to see that is of on the same quarters.

Q

Sure sir. Thank you.

Operator

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

Q - Ashish Thadani

Yes sir. Good evening very nice quarter. Could you provide some insights into the revenue growth in the US region which appears to be relatively sluggish and secondly could you elaborate on your earlier comment about competing for large deals specifically some color on the size and timing would be helpful?

A - Rama Raju

Yeah Ashish this is Ram. As far as contribution from the North American market is concerned, I would include Canada where as well you would notice that the percentage contribution to overall revenues about 64% or so. Overall, our strategy has been to diversify to such an extent that we don’t have over difference on to anyone parameter for business that includes the geography as well. So to that end it is as far with pretty much inline with what we would like to see. The second thing is in general the rest of the world outside of US is increasingly adopting a global delivery model as a significant contributor to value, business value. There is no surprise that the markets in Europe and Asia-Pacific continue to grow aggressively. We also see yet another trend that is probably contributing to this which is many of the globally integrated organizations having seen the full supply for as global delivery model in North America is concerned are continuing to expand their focus to outside of North America that also leads to contribution form outside of North America being substantially higher and, there could be other parameters that are specific for this quarter, are that would also lead the number being smaller. But overall, to the extent we are to able to grow other markets as aggressively as we have been that august well for the diversified business model that we are trying to get to. So in that sense, I shall finish the positive try. As far as the large deals are concerned, we are clearly working on few large deals; unfortunately we are not in any position today to say as the specifics of, either the number of being of some of the timeframes within which some of these might get approximated. I think we will be in a position to share with you as and when we make progress. But clearly we are budding in the few large deals in the market currently.

Q - Ashish Thadani

Billing rates in quarter and also a final question if you could breakdown your current work force by as of experience with, any brackets that might be readily available at this time?

A - Srinivas

Yeah, as far as billing rates are concerned Ashish, there is a marginal up tick in billing rates this quarter, and I think the right comment is, but clearly we are witnessing new customers coming in at higher than average rates, that trend is continuing, we’re also foreseeing some of the contracts that we have renegotiated, coming in at higher than average rates, but obviously this being in a position to influence our average rate positively would take sometime, so out outlook is for Q4 pricing would largely remain stable on their current levels, but the outlook for the interim quarters is positive.

Q - Ashish Thadani

Okay.

A - Srinivas

What Ram has stated, we have not be wild, we do analyze this quite intimately, we have not been sharing these statistics of experience-wise positioning of manpower within the company. I’m afraid that that’s not a decade we can go into, in this call.

Q - Ashish Thadani

Okay fair enough. And finally what sort of tax rate should be looking for in the next few quarters?

A - Rama Raju

More or less at the current levels going up to maybe 13% of CPVT; 13% to 13.5%.

Q - Ashish Thadani

Thank you very much and good luck.

Operator

Your next question comes from the line of Mike Stein with Thames River Capital.

Mr. Stein your line is open.

A - Srinivas

Maybe we can move to the second next person.

Operator

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

Mr. Miller your line is open.

A - Srinivas

Can we move to the next person please?

Operator

At this time, there are no further questions. At this time I would like to hand over the floor to Satyam management.

Operator

Thank you. We will now continue the Q&A interactive session at WebEx India. Participants who wish to ask questions, simply press “*” “1” now.

We have the next question coming from Ms. Divya of Motilal Oswal. Please go ahead ma’am.

Q - Divya

Hi. My question leads to the kind of deal wins that you have seen in this quarter. Could you highlight on a few significant deals that you have, like on during the quarter?

A - Rama Raju

Yeah Divya, this is Ram. I think two, three positives that we can readily see. #1 is the number of customers that we have added in this quarter is probably one of the highest in any of the quarters for a while; in fact 35 new customers were added in this quarter. But more importantly the quality, there are 6 of those 35 are Fortune 500 customers, were US Fortune 500 and global Fortune 500 customers. That we believe will give us a significant opportunity to mind these customers and build strategic partnerships and these are obviously leaders in their own markets and we are fortunate that we have an opportunity to partner with them. The third thing that we have seen is that there is a increased momentum as far as growth is concerned in gross vertical flat have been, the emerging verticals as we call them where we have made investments in the last few years recognizing the potential and that’s shows so that the efforts are paying off and we are well-positioned to pursue the opportunity in this market. Those are, healthcare, pharmaceuticals, travel and transportation and retail under like. And so clearly, these are positive trends that we are seeing and we believe that those, looks like can be positioned as well for our future growth. There are many more what I think I would just wanted mention the year for.

Q - Divya

Right. You’ve talked about 5500 to 6000 people of Satyam standalone went up, and try additions. Could you give me the target for the BPO?

A - Srinivas

We are not giving guidance for BPO beyond the revenue numbers.

Q - Divya

Right.

A - Srinivas

And the bottom line numbers.

Q - Divya

Somebody could mention this, but attrition this quarter is shorter at almost 18% which is the highest that you’ve had while the industry is also facing similar problems. Do you think there was anything specific that was sparing this quarter, is that…

A - Srinivas

Now I was mentioning earlier, that last few quarters, the attrition levels across the industry have generally gone up, we are not taking comfort from that track, we believe that the current level is at a place which needs to be different and therefore we’ve now, we have taken specific steps to correct the situation.

Q - Divya

All right. And given the kind of addition in employees that you are looking at during the quarter, is it fair to say that the volume growth for Q4 would be better than what we’ve seen in Q3?

A - Srinivas

The very fact that the guidance that we have given is among the highest in many quarters indicates as Ram was earlier saying that we have fairly confident that the growth would happen on the back of into the volumes.

Q - Divya

Okay, thanks very much and congrats for a great quarter.

Operator

Thank you very much ma’am. Next in line we have Mr. Shekhar Singh ICICI Securities. Please go ahead sir.

Q - Shekhar Singh

Yeah. Hi sir and congratulations on a very good scheduled numbers. I just wanted your views on this attrition going up for the industry, should it be viewed positively or should it be viewed negatively. Positive in the sense like if a demand is increasing therefore the attrition is going up. What will be your views on these?

A - Srinivas

I think you have a very important point, it is time when in the late 90s industry was growing very rapidly, we have also found attrition levels to be high and then in that sense it positive correlation, it is good for the industry I’m not very sure if it is good for the company.

Q - Shekhar Singh

Sir secondly like, I was just going to the left of some the clients, prominent client wins which has been given, just the separating from the indications which has been given, it seems some of those clients are already existing clients of other companies. So I just wanted to know like what exactly is the trend, is it like basically the same client, same last clients are now going in for multi-vendor and is just basically a shift from one to the other and trying to play one vendor against the other?

A - Srinivas

I think it is fairly broad based, the, in the last few years our experience has been that there is tremendous shift in the mindsets of top management in large global companies where they are viewing the offshoring model as, that is a, for its not limited any longer to only given number companies like Satyam are examples, itself has relationships with 105 of global and Fortune 500 companies and if we look at it from an industry perspective, most of the Fortune 500 companies have already leveraged on this, taken advantage of this model, therefore we believe that larger deals are not limited to few companies taking this initiative. There maybe some which are more visible now, but we can expect many more to become more aggressive.

Q - Shekhar Singh

Sir, in this line, is there some concerted strategy within Satyam in trying to target some of the larger clients because if the client is also wanting to do something similar and Satyam can offer an alternative then why not, so is there some strategy build…

A - Srinivas

Yes, of course, also that is very much the case. In the last few years, we were personally focused on that. We have strengthened our relationship management capabilities, our ability to address business issues and therefore provide integrated solutions and number of steps whether it is Satyam School of Leadership or the strategic deal focus or the manner in which we are able to demonstrate leadership or innovation and many things that we do. So this is nothing new, as we have been working on these, whatever was anticipative by the place, for more prominent place in the industry is coming out to be true. And in that sense, we believe that what our investments that have been made in the last few years will bear fruit.

Q - Shekhar Singh

Sir, next basically just wanted to understand the churn in the top 5 and top 10 clients, say a churn which happens say, over of 3, 4 quarter period looks good. But if the churn in clients have start happening on a quarterly basis, then it basically is that there’s a large amount of possible business that you are doing, which basically increases the riskyness of the company. So if you can just comment on this thing, is the churn happening on a happening on a quarterly basis in the top 5 and top 10 clients?

A - Rama Raju

Shekhar we honestly don’t factor the churn is happening on a quarterly basis specifically our client or not. What we are more concerned about is whether the significant partnerships that we have been or would establish, are they continuing to grow? And are we doing the right things in order that growth trend continues as long as, we are confident of that trend continuing, these quarterly variations of client moving in and out of the top 10, I feel we don’t view it a s a major concern.

Q - Shekhar Singh

Okay sir. But one last question as related to this enterprise solutions, configuring that its 40% of your revenue that’s compared to 11% to 15% in case of other companies, I just wanted to know are there any service lines which include enterprise solutions which other companies might not be including in enterprise solutions?

A - Rama Raju

Well, Shekhar, all I would say is that maybe you talked about the established leadership position that…

Q - Shekhar Singh

Exactly.

A - Rama Raju

We are able to create in the market. And the brand recall for Satyam as far as enterprise business solutions opportunity for concerned, we broadly categorize the applications and integration-related services along, various technology and short-term services as enterprise business solutions, we would like to believe that’s a fairly uniform on consistent definition of enterprise business solutions, I’m not driving to how other organizations choose to define enterprise business solutions, if I have to venture I guess, I would think that it is a fairly uniform and consistent one.

Q - Shekhar Singh

Thank you sir and congratulations once again.

A - Rama Raju

Thank you.

Operator

Thank you very much sir. Next question comes from the line of Mr. Sameer Goyal with Anand Rathi Securities.

Q - Sameer Goyal

Yes sir, I would like to add just one question actually, when I go to the breakdown of the expenses, I see a sudden decline in legal and professional charges and VISA charges during the quarter which I believe would be the major driver the margin improvement in the current quarter. Your call on the same and these view going forward?

A - Rama Raju

Yeah, the decline is primarily because of lessen number VISAs we have taken when compared to the last quarters, so going forward we expect this to increase quarter-on-quarter basis but overall, we expect to be G&A as a expenditure had to remain under check.

Q - Sameer Goyal

Sir, so you could just elaborate and little bit pour on which meager expenses you might see some correction happening because I see traveling going up sharply this quarter, apart from some other expenses?

A - Rama Raju

Yeah, I’m in, while it maybe difficult for us to talk about account advice, being to overall what we, our stand is that again in absolute terms will grow quarter-on-quarter but as a percentage of revenue so our endeavor is to bring it down. So that is at a G&A, a advise, I think as you know quarter-on-quarter there will be aberrations so to that extent, we didn’t get, predicting it quarter-wise maybe that much more difficult.

Q - Sameer Goyal

Okay now sir that we can just believe that the next quarter it would be a little bit down as a percentage of sales and maybe next year again it would be down as a percentage of sales.

A - Rama Raju

One of the, yeah, let us see how it stands out, as I was mentioning this is our endeavor. So we think to see how things turn out. But as that we keep mentioning, selling expenses is one thing where we want to invest, because that drives our growth, so to that extent whatever selling we will make in G&A, mean to something, sometimes you may get something rated by, what we’ve spend on air slot. So overall, I think we need to see how things standout but this is our general strategy.

Q - Sameer Goyal

Fine thanks and best of luck.

Operator

Thank you very much sir. Next question comes from the line of Mr. Ruchit Mehta with Ask Raymond James.

Q - Ruchit Mehta

Yeah, hi my questions have been answered thank you.

Operator

Thank you very much sir. Next question comes from Mr. Ashwin (indiscernible). Please go ahead sir.

Mr. Ashwin? Hello sir, are you there? We move on to the…

Q - Ashwin

My question has already been asked, thanks.

Operator

Thank you, sir. We move over to the next question. Next in line is Mr. Anthony Miller from Arete Research.

Q - Anthony Miller

Hello gentlemen can you hear me this time?

A - Rama Raju

Yes we can.

Q - Anthony Miller

Yes. There was a problem with the International Bridge and you actually lost a couple of callers there but I just out back in on India, thanks for that. A couple of things, firstly, I’m just trying to reconcile your view on the offshore mix. You said you saw more opportunity for that rise. Yet you also said that with your enterprise solutions business you saw more of a shift towards consulting lead opportunities. Now of course consulting that indeed enterprise in general, requires more onside presence so how would you expect to rise offshore if your enterprise is in fact growing more from trend?

A - Rama Raju

Well, it is without any doubt a challenge, but the one which can be addressed we have over a period of time been able to enhance the offshore proportion of enterprise solution and we will continue to attempt to do that, we have been able to put appropriate methodologies in place and processes in place to better address the same. And, and maybe on account of that that the offshore levels are, where they are, otherwise we would have been at even higher level by now. So, we did take that into consideration as well when we have made such statement.

Q - Anthony Miller

Okay and secondly a question related, I guess to attrition, I am concerned about the level that is beyond, its now, the size has been for several quarters in spite of some initiatives, I know you’re taking when I met your management team in Hyderabad just last year, my concern is are any of the actions you are taking salary-related, in other words should we be expecting higher salary increases next year and perhaps you could just remind us please when your salary cycle is in very high, in entering year?

A - Rama Raju

There was a time when we have brought down the attrition to lower level and in the last couple of quarters the attrition levels did go up, there are a number of things that we could do; we have enhanced the salaries and remuneration in general. We believe that we should be able to put the attrition issues back on track without having to substantially compromise on the, on the remuneration cost, going out of control?

Q - Anthony Miller

Can you just remind us when your next salary increase is due please?

A - Srinivas

Generally, our increases happened; this is Srinivas here, on 1st April that is our financial year beginning so around that time we’ll be giving increments.

Q - Anthony Miller

Okay and do you view yet to so what those increases will be?

A - Srinivas

No not yet. I think we, we are yet to, yet to give you on that.

Q - Anthony Miller

Okay and then just finally, just a clarification on tax rate, I track on the US GAAP measures. Can you give us a guidance on tax rate US GAAP for fourth quarter of the year please?

A - Srinivas

No. It will go up marginally quarter-on-quarter, the taxation right now as a PBT, the income tax is roughly around 13%, 12.5% or so. So for the entire year, we expect this to be around 13%, anywhere between 13% to 13.5%.

Q - Anthony Miller

Okay and that’s in US GAAP?

A - Srinivas

Yeah.

Q - Anthony Miller

Right. Okay, thanks very much indeed.

A - Srinivas

Thank you.

Operator

Thank you very much sir. At this moment, I would like to handover the floor back to Satyam management for final remarks.

Srinivas, Chief Financial Officer

Thank you Prathiba and thank you every one of you for your active participation. If you have any further queries, please do not hesitate to contact us. You can send an email to us at investorrelations@satyam.com; we are available for any clarifications and then speak. Thanks once again to all of you. Good day and good night.

Operator

Ladies and gentlemen, thank you for WebEx conference 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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