The entire country and our (mostly overzealous) media were rightfully outraged and went lock, stock and barrel after the Ram Sena. Yesterday, the Ram Sena chief finally decided to apologize. Ram Muthalik, the president of the Sena, went on national TV and apologized to the country (and I believe to the families of the victims) for what had happened. However, the apology was not unconditional.

He accepted the fact that the way the ‘punishment’ was carried out was wrong and asked forgiveness. BUT he made clear that the underlying provocation for the attack was justified – that it was against ‘Hindutva’ for women to be behaving in this fashion. When asked by the TV anchor interviewing him what right the Ram Sena had to carry out this act (i.e. were they the police, military or government), the reply was that it was the right, no duty, of every concerned citizen to defend and uphold the culture of their country.

Of course, as with everything in India, there were a series of twists. That the attack was carried out, not by the Ram Sainiks, but by other groups to indirectly taint the BJP government in the state. That the pub at which the incident took place owed money to some people and that this was a way of enforcing the loan and many others like this.

The police, of course, was sleeping as usual.

All of Satyam’s revenue and profit figures seem to be accurate. The difference in the originally reported accounts and the ones alleged by Raju was actually what he stole and pumped into Maytas Properties (which is an unlisted real estate company and is distinct from the listed Maytas Infrastructure, which is a construction company) or his own personal holdings.

The original plan would have gone something like this.

1. Siphon off tons of cash from the hugely cash-generative IT business and use it to buy major chunks of land (Raju through Maytas and personally is one of the country’s 10 largest landowners).
2. List Maytas Properties sometime in 2008 and raise a gazillion or so dollars.
3. Funnel the extra cash back into Satyam and no one would be the wiser.

This is what went wrong. The economy crashed and burned. The planned listing of Maytas Properties went out the door and suddenly Raju was left with a massive but wholly illiquid land bank and no way of making good on the Satyam stealing. The letter of apology was actually a masterstroke that diverted the authorities completely and made Raju out to be a perhaps dishonest but well-meaning man. It was also most probably done under severe political pressure as the real story (which is unfolding now) would have implicated too many of our esteemed politicians from both the current and previous governments.

If the letter story had stuck, Raju would have been embrolied in cases for a while, but his personal assets would have been untouched and probably made a lot more money for his family. Needless to say, with his still impressive clout, he wouldn’t have spent much (if any) time in jail. The real story seems to have come out (and this is only speculation on my part) when Vadlamani (the CFO who tried to commit suicide) “sang like a canary” to the cops.

Stay tuned for more on the  Satyam show. I’m sure it’ll get more interesting.

The one area that’s being largely (and I say largely as there are a few analysts that have brought it up) ignored is the viability of Satyam’s business. Even if the revenues were overstated by more than Rs. 500 crore for the last quarter, they still amount to Rs. 2,100 crores. On an annualized basis, thats ~Rs. 8,500 crores in revenue, nothing to sneeze at. The issue being brought up in this regard of course was profitability, which was actually Rs. 61 crore (3%), as against an industry standard of nearly 30%. The explanation for this lies in the statement made by Ramalinga Raju.

The differential in the real profits and the one refleted in the books was further accentuaated by the fact that the company had to carry additional resources and assets to justify higher level of operations – thereby significantly increasing the costs.

The profit margins were therefore suffering because artificial costs were being piled on. About half of Satyam’s business came in from foreign clients, with operating margins as high as 45%. They have a roster of top tier clients ranging from Ford to Nestle and serve a third of the Fortune 500. That’s no mean feat. In terms of revenues, they were the fourth largest Indian IT vendor.

If, as the government is now suggesting, a new board and new management can be inducted, the core business of the company, which in my opinion is sound, can be leveraged to bring this back. Of course, if a strategic investor with some appetite for risk, or the right deal in terms of deflecting legal risk, can come on board, then I think they’ll make a killing.

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Indian TV shows are generally made for no money at all. The various primetime shows or ‘saas-bahu’ serials as we know them are made for anywhere between 3 and 5 lacs (about $6,000 – $10,000) per episode and are bought by channels at prices that are more linked to kickbacks and relationships than to quality.

This in itself is not surprising. Indian media is generally pretty cheap. Even film budgets in India are nothing compared to the west. But the difference in the TV costs are so stark that one begins to get the idea about the lack of quality in India.

The biggest and most visible example in all of this cost cutting is the writing. A standard TV writer in India gets paid Rs. 15,000 per shift (of about 8 hours). That is about $300! Yes. $300 for 8 hours of writing (in which the poor chap is supposed to deliver at least an episode if not more than one). Can you imagine if a writer in the US was offered $300 for an episode? The plots on Grey’s Anatomy would definitely suck a lot!

Writers in India get paid absolutely nothing. While TV is the worst, even film writers in comparison get a pretty raw deal. A top notch film director in India can make close to $1 million (about Rs. 4 – 5 crores) for a big film. Some rare ones get even more. Even a relatively new director with some decent work can get $200 – $300k. A top notch writer in the Indian film industry will be paid MAYBE a $100k. Most get paid a fraction of that.

Top western shows get made for millions per episode. In terms of technical and mostly even creative quality, they are indistinguishable from film.

India has a long way to go on this front yet.

The former automobile conglomerate, British Leyland, should serve as an example. BL at one time owned big name brands MG, Rover, Jaguar, Austin and Morris. The British government put in over $16.5 billion of inflation adjusted money to try and revive a company where no one even knew if individual units were profitable. The company LOST $2,000 on every MG sold in the US.

http://www.nytimes.com/2008/11/18/business/economy/18car.html?partner=permalink&exprod=permalink

The Big three are in similar positions. Each of them have such HUGE legacy costs that they need to tag on about $2,500 to each car just to cover those. As Mitt Romney put it in an article for the NY Times, a comparable Japanese car had literallt two grand more of “stuff” in it for a comparable retail price.

http://www.nytimes.com/2008/11/19/opinion/19romney.html?partner=permalink&exprod=permalink

These companies need to be allowed to fail and emerge as strong, profitable and rational enterprises. Not continue bleeding government money after they finish their own.