[Assam] Bus wk: Hyderabad discounts demanded - Satyam fame

[umesh sharma]

Someone commented that Hyderabad is South Indian counterpart in corruption to Bihar. Is that correct - as KPMG notes.Umesh


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Satyam Scandal Takes Toll on Hyderabad



Bangalore's rival city for Indian IT outsourcing is under the microscope in the wake of last month's fraud revelations at Satyam


By
Manjeet Kripalanihttp://www.businessweek.com/globalbiz/content/feb2009/gb2009026_906652.htm?chan=top+news_top+news+index+-+temp_global+business



The collapse of Satyam Computer Services (SAY)
on Jan. 7 touched off a flurry of anxious investor conference calls set
up by bankers and analysts. Rajeev Chandrasekhar, a member of
Parliament and president of the Federation of Indian Chambers of
Commerce & Industry, sat in on one—and was startled by what he
heard. How, asked one foreign investor, does one spot the next Satyam?


In particular, the callers homed in on the similarities between Satyam and other companies
based in its hometown of Hyderabad. Like Satyam, many of these outfits
are managed by their founders, enjoy strong links to local politicians,
and have built up big land holdings—even when their core businesses
have nothing to do with real estate or development. "There is a lot of
pressure on Hyderabad companies to prove they are not like Satyam,"
says Chandrasekhar.

Effect on Stock Prices
It has been a dramatic fall from grace for Hyderabad, the southern
Indian city that had emerged as a viable competitor to Bangalore as the
public face of the new India. Giants such as Microsoft (MSFT), Dell (DELL), Oracle (ORCL), and Google (GOOG)
have opened offices there. But Satyam was also among the city's leading
lights, and Hyderabad today is rife with tales of murky land dealings,
companies that cook their books, and owners who siphon off cash.

Now investors are talking about a "Hyderabad discount" for companies
based there. Even before the scandal, Satyam's stock typically had
about two-thirds the price-earnings ratio of market leaders such as
Infosys Technologies (INFY) and Wipro (WIT). The reason: Satyam did relatively simple work, and investors fretted about Chairman Ramalinga Raju's political connections.


Satyam's fall seemed to validate those latent fears. Since Jan. 7 stock
prices for the top 50 listed companies from Hyderabad, mostly managed
by their founders, have fallen by an average of 23% (not including
Satyam's near-total collapse), vs. an 11% fall for the Bombay Stock
Exchange's benchmark index. In contrast, the top 50 companies in
Bangalore have fallen by 14%. "Hyderabad developed as a low-cost option
to Bangalore," says Ravi Raheja, chief executive of Mumbai developer K. Raheja & Sons, which has built offices for many tech companies in Hyderabad. "Now we are back to square one."

A Different Path to Growth

Some blame history for Hyderabad's problems. As recently as the late
1940s the region was feudal and largely poor, with little industry and
virtually no middle class, though many farmers had extensive land
holdings. When Hyderabad became the capital of Andhra Pradesh state in
1956, the rich farmers got into the construction business. Major
infrastructure projects were launched and local companies with little
experience—but strong political ties—emerged to win government
contracts.

Neighboring Bangalore, in contrast, was a military station during
the British Raj, so it was apolitical, well run, and orderly, known for
its pleasant climate and lush gardens. In 1947 newly independent India
made it a center of scientific and industrial research and built major
universities there.


The city's IT industry was born from those institutions, independent of
political ties. "Bangalore has deep professional roots," says Mohandas
Pai, director at Infosys, the city's leading IT player.

A young chief minister of Andhra Pradesh, Chandrababu Naidu,
concluded that information technology was the key to changing the
destiny of his impoverished state. By 2000, Naidu had dubbed his new
vision "Cyberabad," and placed his hopes in tech entrepreneurs such as
Raju. Farmers-turned-builders got fat state contracts to build highways
and develop IT parks. In two years, Hyderabad was in full competition
with Bangalore for the IT and biotech pie. As Bangalore choked on its
own growth, companies gratefully shifted to Hyderabad.


One of those was Alliance Global Services,
a $50 million provider of software services based near Philadelphia.
Unable to find affordable talent in Bangalore, it moved its 40-man
operation to Hyderabad, where it now has 300 employees. Though the
company intends to stay in Hyderabad, in the wake of the Satyam scandal
Alliance is worried about its reputation. Alliance Chief Executive John
Castleman says that while U.S. customers may not be aware of the
location of the Indian companies they hire, "maybe they should be,
given the potential for local politics to play a role in corporate
governance in India."

"Crony Capitalism"

Hyderabad's dodgy reputation extends to its professional class. Accounting firm KPMG
runs a busy practice in India that helps companies spot fake degrees
and exaggerations of job experience. While Hyderabad isn't alone in
this sort of activity, it's the embellished-résumé capital of India,
says Garuav Taneja, who runs the KPMG operation. In the city's Ameerpet
neighborhood, a fresh college grad with no experience can better his
job prospects with a $200 set of fake documents. "It's a highly
lucrative and openly run business in Hyderabad," says Taneja.

Some in Andhra Pradesh are trying to change the system. EAS Sarma, a
former top economist in the Finance Ministry in New Delhi, now lives
near Hyderabad. He's battling to reverse Satyam's December purchase of
50 acres of state property along an endangered coastline. Satyam bought
the land for what Sarma says was just 10% of its market value,
resulting in a loss of at least $52 million for the state. He is also
demanding details of property sales to 14 Hyderabad companies that he
says are closely connected to the state government. "It's crony
capitalism," Sarma says. "Giving away cheap land is not promoting
industrialization; creating a corruption-free environment and
simplified procedures is." A government spokesman declined to comment
on the matter.

The biggest beneficiary of Hyderabad's distress may be its rival to
the south. Infrastructure bottlenecks in Bangalore have been a boon for
Hyderabad in recent years. But now, Bangalore is in the process of
building new roads and even a subway. And to ensure transparency, the
government is providing citizens a quarterly update on the progress of
development projects. "Here, business and political interests don't
converge," says Manish Sabbarwal, who runs TeamLease, India's largest
temp agency, based in the city. In Bangalore, "they occupy powerful but
separate and parallel universes."


Umesh Sharma



Washington D.C. 



1-202-215-4328 [Cell]



Ed.M. - International Education Policy

Harvard Graduate School of Education,

Harvard University,

Class of 2005



http://www.uknow.gse.harvard.edu/index.html (Edu info)



http://hbswk.hbs.edu/ (Management Info)









www.gse.harvard.edu/iep  (where the above 2 are used )

http://harvardscience.harvard.edu/







http://jaipurschool.bihu.in/