1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities
Exchange Act of 1934
For the quarter ended December 31, 2000
Commission File Number 000-27663
SATYAM INFOWAY LIMITED
(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of registrant's name into English)
Republic of India
(Jurisdiction of incorporation or organization)
Second Floor, Tidel Park
No. 4, Canal Bank Road, Taramani, Chennai 600 113, India
(91) 44-254-0770
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F. Form 20F [X] Form 40 F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g3-2(b). Not applicable.
2
CURRENCY OF PRESENTATION AND CERTAIN DEFINED TERMS
Unless the context otherwise requires, references herein to "we," "us,"
the "company," "SIFY" or "Satyam Infoway" are to Satyam Infoway Limited, a
limited liability company organized under the laws of the Republic of India.
References to "U.S." or the "United States" are to the United States of America,
its territories and its possessions. References to "India" are to the Republic
of India. We are a majority-owned subsidiary of Satyam Computer Services
Limited, a leading Indian information technology services company which is
traded on the major Indian stock exchanges ("Satyam Computer Services").
"Satyam" is a trademark owned by Satyam Computer Services, which has licensed
the use of the "Satyam" trademark to us subject to specified conditions.
"Sify.com," "Satyam Online," "Satyam:Net" and "satyamonline.com" are trademarks
used by us for which we have registration applications pending in India. All
other trademarks or tradenames used in this Report on Form 6-K ("Quarterly
Report") are the property of their respective owners.
In this Quarterly Report, references to "$," "Dollars" or "U.S. Dollars"
are to the legal currency of the United States, and reference to "Rs.," "rupees"
or "Indian Rupees" are to the legal currency of India. References to a
particular "fiscal" year are to our fiscal year ended March 31 of such year.
For your convenience, this Quarterly Report contains translations of
some Indian rupee amounts into U.S. dollars which should not be construed as a
representation that those Indian rupee or U.S. dollar amounts could have been,
or could be, converted into U.S. dollars or Indian rupees, as the case may be,
at any particular rate, the rate stated below, or at all. Except as otherwise
stated in this Quarterly Report, all translations from Indian rupees to U.S.
dollars contained in this Quarterly Report have been based on the noon buying
rate in the City of New York on December 31, 2000 for cable transfers in Indian
rupees as certified for customs purposes by the Federal Reserve Bank of New
York. The noon buying rate on December 31, 2000 was Rs. 46.75 per $1.00.
Our financial statements are prepared in Indian rupees and presented in
accordance with United States generally accepted accounting principles ("U.S.
GAAP"). Solely for your convenience, some of the information contained in our
financial statements has been translated into U.S. dollars. In this Quarterly
Report, any discrepancies in any table between totals and the sums of the
amounts listed are due to rounding.
Information contained in our websites, including our corporate website,
www.sifycorp.com, is not part of this Quarterly Report.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH
A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS QUARTERLY REPORT. YOU ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE OF THIS REPORT. IN ADDITION, YOU
SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS QUARTERLY REPORT AND IN
OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION (THE "SEC") FROM TIME TO TIME. OUR FILINGS WITH THE SEC
ARE AVAILABLE ON ITS WEBSITE, WWW.SEC.GOV.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SATYAM INFOWAY LIMITED
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN INDIAN RUPEES, EXCEPT SHARE DATA AND AS OTHERWISE STATED)
ASSETS
-----------------------------------------------------------
MARCH 31, DECEMBER 31, DECEMBER 31
2000 2000 2000
--------------- --------------- ---------------
RS. RS. US $
--------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents 7,307,624,832 2,180,173,854 46,634,735
Accounts receivable, net of allowances of Rs.2,420,628
and Rs.11,730,628 as of March 31, 2000 and December 31,
2000 respectively 245,029,816 782,816,215 16,744,732
Due from officers and employees 6,387,228 8,782,766 187,867
Inventories 18,184,123 59,210,055 1,266,525
Investments 22,610,768 15,675,624 335,307
Investments in affiliate -- 1,576,960,038 33,731,766
Deferred tax assets 113,531 118,692 2,539
Prepaid expenses 251,537,335 254,925,834 5,452,959
Other current assets 166,430,957 245,664,828 5,254,863
--------------- --------------- ---------------
TOTAL CURRENT ASSETS 8,017,918,590 5,124,327,906 109,611,293
Plant and equipment--net 915,020,689 2,281,430,742 48,800,658
Goodwill and other intangible assets 1,630,417,553 4,753,543,718 101,680,080
Deferred taxes 268,606 633,779 13,557
Other assets 70,378,149 138,714,111 2,967,147
--------------- --------------- ---------------
TOTAL ASSETS 10,634,003,587 12,298,650,256 263,072,735
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt 40,266,667 -- --
Current installments of capital lease obligations 2,104,379 4,807,389 102,832
Trade accounts payable 170,587,041 138,050,192 2,952,945
Due to parent company 17,114,393 29,663,851 634,521
Accrued expenses 66,613,282 280,848,033 6,007,445
Deferred revenue 150,494,236 203,970,627 4,363,008
Taxes payable 2,285,000 1,386,483 29,657
Deferred tax liability 5,611,551 1,945,551 41,616
Advances from customers 20,652,522 30,535,796 653,172
Other current liabilities 38,670,073 26,973,974 576,984
--------------- --------------- ---------------
TOTAL CURRENT LIABILITIES 514,399,144 718,181,896 15,362,180
NON-CURRENT LIABILITIES:
Long-term debt, excluding current installments 168,860,111 960,111 20,537
Capital lease obligations, excluding current installments 4,305,547 8,796,318 188,157
Other liabilities 10,300,000 22,723,765 486,072
--------------- --------------- ---------------
TOTAL LIABILITIES 697,864,802 750,662,090 16,056,946
--------------- --------------- ---------------
MINORITY INTEREST 8,298,211 66,555,930 1,423,656
STOCKHOLDERS' EQUITY
Common stock, Rs.10 par value; 25,000,000 Equity Shares
authorized as of March 31, 2000 and December 31, 2000;
Issued and outstanding Equity Shares - 22,249,425 as of
March 31, 2000 and 23,189,105 as of December 31, 2000 222,494,250 231,891,050 4,960,236
Additional paid-in capital 10,520,953,486 13,748,872,313 294,093,525
Deferred Compensation -- Employee Stock Offer Plan (120,224,615) (146,042,595) (3,123,906)
Accumulated deficit (696,833,862) (2,351,470,975) (50,298,844)
Accumulated other comprehensive income 1,451,315 (1,817,557) (38,878)
--------------- --------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 9,927,840,574 11,481,432,236 245,592,133
--------------- --------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 10,634,003,587 12,298,650,256 263,072,735
=============== =============== ===============
See accompanying notes to consolidated financial statements.
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4
SATYAM INFOWAY LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(EXPRESSED IN INDIAN RUPEES, EXCEPT SHARE DATA AND AS OTHERWISE STATED)
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------
1999 2000 2000
RS. RS. US $
-------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues 184,628,108 471,611,116 10,087,938
Cost of revenues (77,685,221) (404,651,122) (8,655,639)
-------------- -------------- --------------
GROSS PROFIT/(LOSS) 106,996,887 66,959,994 1,432,299
-------------- -------------- --------------
OPERATING EXPENSES:
Selling, general and administrative expenses 171,158,559 571,298,480 12,220,288
Amortization of goodwill 28,998,120 278,529,874 5,957,858
Amortization of deferred stock compensation expense 6,162,079 23,948,557 512,269
-------------- -------------- --------------
TOTAL OPERATING EXPENSES 206,318,758 873,776,911 18,690,415
-------------- -------------- --------------
Operating loss (99,321,871) (806,816,917) (17,258,116)
Other (expense)/ income, net 27,589,206 56,898,669 1,217,084
Loss before taxes, equity in losses of affiliate and minority
interest (71,732,665) (749,918,248) (16,041,032)
Taxes (716,599) -- --
Equity in losses of affiliate -- (121,886,478) (2,607,197)
Minority Interest (850,924) 10,404,145 222,549
-------------- -------------- --------------
NET LOSS (73,300,188) (861,400,581) (18,425,680)
============== ============== ==============
NET LOSS PER EQUITY SHARE (3.55) (37.29) (0.80)
============== ============== ==============
Weighted Equity Shares used in computing loss per equity share 20,643,962 23,101,714 23,101,714
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------
1999 2000 2000
RS. RS. US $
-------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues 392,909,169 1,228,450,196 26,277,010
Cost of revenues (184,795,363) (874,946,046) (18,715,423)
-------------- -------------- --------------
GROSS PROFIT/(LOSS) 208,113,806 353,504,150 7,561,587
-------------- -------------- --------------
OPERATING EXPENSES:
Selling, general and administrative expenses 380,365,208 1,485,634,532 31,778,279
Amortization of goodwill 28,998,120 637,342,411 13,632,993
Amortization of deferred stock compensation expense 6,644,118 71,228,792 1,523,611
-------------- -------------- --------------
TOTAL OPERATING EXPENSES 416,007,446 2,194,205,735 46,934,883
-------------- -------------- --------------
Operating loss (207,893,640) (1,840,701,585) (39,373,296)
Other (expense)/ income, net 7,501,249 371,365,145 7,943,639
Loss before taxes, equity in losses of affiliate and minority
interest (200,392,391) (1,469,336,440) (31,429,657)
Taxes (716,579) 325,333 6,959
Equity in losses of affiliate 20 (196,412,628) (4,201,340)
Minority Interest (850,924) 10,786,624 230,730
-------------- -------------- --------------
NET LOSS (201,959,914) (1,654,637,111) (35,393,308)
============== ============== ==============
NET LOSS PER EQUITY SHARE (11.61) (72.75) (1.56)
============== ============== ==============
Weighted Equity Shares used in computing loss per equity share 17,401,245 22,745,053 22,745,053
See accompanying notes to consolidated financial statements.
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5
SATYAM INFOWAY LIMITED
STATEMENTS OF CONSOLIDATED STOCK HOLDERS EQUITY
(EXPRESSED IN INDIAN RUPEES, EXCEPT SHARE DATA AND AS OTHERWISE STATED)
ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT DURING
PAID DEVELOPMENT
SHARES PAR VALUE IN CAPITAL STAGE
----------- ----------- ---------- -------------
BALANCE AS OF DECEMBER 12, 1995 (inception) 230 2,300 -- --
Net Loss -- -- -- 634,213
BALANCE AS OF MARCH 31, 1996 230 2,300 -- (634,213)
Net Loss -- -- -- (26,336,901)
----------- ----------- ----------- ------------
BALANCE AS OF MARCH 31, 1997 230 2,300 -- (26,971,114)
Common stock issued to the parent Company 7,500,000 75,000,000 -- --
Net loss -- -- -- (100,590,364)
----------- ----------- ----------- ------------
BALANCE AS OF MARCH 31, 1998 7,500,230 75,002,300 -- (127,561,478)
Deficit transfer -- -- -- 127,561,478
Common stock issued to the parent Company 4,879,770 48,797,700 44,986,200 --
Other issuance of common stock 3,370,000 33,700,000 180,000,000 --
Net loss -- -- -- --
Compensation related to stock option grants -- -- 1,650,000 --
Amortisation of compensation related to
stock option grants -- -- -- --
----------- ----------- ----------- ------------
BALANCE AS OF MARCH 31, 1999 15,750,000 157,500,000 226,636,200 --
Deficit transfer -- -- -- --
Common stock issued to the parent Company 150,000 1,500,000 76,620,000 --
Common stock issued during the period 6,349,425 63,494,250 10,078,427,094 --
Net loss -- -- -- --
Compensation related to stock option grants -- -- 139,270,192 --
Amortisation of compensation related to
stock option grants -- -- -- --
Other comprehensive income, net of tax
----------- ----------- ----------- ------------
BALANCE AS OF MARCH 31, 2000 22,249,425 222,494,250 10,520,953,486 --
Net loss (unaudited) -- -- -- --
Common stock issued during the period 934,680 9,396,800 3,130,872,055 --
Compensation related to stock option grants
(unaudited) -- -- 97,046,772 --
Amortisation of compensation related to
stock option grants (unaudited) -- -- -- --
Other comprehensive income, net of tax
(unaudited) -- -- -- --
----------- ----------- ----------- ------------
BALANCE AS OF DECEMBER 31, 2000 (UNAUDITED) 23,189,105 231,891,050 13,748,872,313 --
BALANCE AS OF MARCH 31, 2000 (IN US$) 22,249,425 4,977,500 235,368,087 --
BALANCE AS OF DECEMBER 31, 2000 (IN US$) 23,189,105 4,960,236 294,093,525 --
(UNAUDITED)
DEFERRED
OTHER COMPENSATION--
COMPREHENSIVE EMPLOYEE STOCK ACCUMULATED STOCKHOLDERS'
INCOME OFFER PLAN DEFICIT EQUITY
------------ ----------- ----------- -----------
BALANCE AS OF DECEMBER 12, 1995 (inception) -- -- -- 2,300
Net Loss -- -- -- 634,213
BALANCE AS OF MARCH 31, 1996 -- -- -- (631,913)
Net Loss -- -- -- (26,336,901)
------------ ----------- ----------- ------------
BALANCE AS OF MARCH 31, 1997 -- -- -- (26,968,814)
Common stock issued to the parent Company -- -- -- 75,000,000
Net loss -- -- -- (100,590,364)
------------ ----------- ----------- -----------
BALANCE AS OF MARCH 31, 1998 -- -- -- (52,559,178)
Deficit transfer -- -- (127,561,478) --
Common stock issued to the parent Company -- -- -- 93,783,900
Other issuance of common stock -- -- -- 213,700,000
Net loss -- -- (187,375,665) (187,375,665)
Compensation related to stock option grants -- (1,650,000) -- --
Amortisation of compensation related to
stock option grants -- 68,751 -- 68,751
------------ ----------- ----------- -----------
BALANCE AS OF MARCH 31, 1999 -- (1,581,249) (314,937,143) 67,617,808
Deficit transfer -- -- -- --
Common stock issued to the parent Company -- -- -- 78,120,000
Common stock issued during the period -- -- -- 10,141,921,344
Net loss -- -- (381,896,719) (381,896,719)
Compensation related to stock option grants -- (139,270,192) -- --
Amortisation of compensation related to
stock option grants -- 20,626,826 -- 20,626,826
Other comprehensive income, net of tax 1,451,315 -- -- 1,451,315
------------ ----------- ----------- -----------
BALANCE AS OF MARCH 31, 2000 1,451,315 (120,224,615) (696,833,862) 9,927,840,574
Net loss (unaudited) -- -- (1,654,637,113) (1,654,637,113)
Common stock issued during the period -- -- -- 3,140,268,855
Compensation related to stock option grants
(unaudited) -- (97,046,772) -- --
Amortisation of compensation related to
stock option grants (unaudited) -- 71,228,792 -- 71,228,792
Other comprehensive income, net of tax
(unaudited) (3,268,872) -- -- (3,268,872)
------------ ----------- ----------- -----------
BALANCE AS OF DECEMBER 31, 2000 (UNAUDITED) (2,817,557) (146,042,595) (2,351,470,975) 11,481,432,236
BALANCE AS OF MARCH 31, 2000 (IN US$) 32,968 (2,689,589) (15,589,124) 222,099,342
BALANCE AS OF DECEMBER 31, 2000 (IN US$)
(UNAUDITED) (38,878) (3,123,906) (50,298,844) 245,592,133
4
6
SATYAM INFOWAY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN INDIAN RUPEES, EXCEPT SHARE DATA AND AS OTHERWISE STATED)
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------
1999 2000 2000
-------------- -------------- --------------
RS. RS. US$
-------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net loss (201,959,914) (1,654,637,111) (35,393,308)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization 114,815,226 984,004,304 21,048,220
Share of loss in equity investees -- 196,412,628 4,201,340
Unrealized loss on investments -- 2,429,789 51,974
Profit on sale of investments (99,150) -- --
Loss on sale of plant and equipment -- 216,875 4,639
Minority interest 850,949 (10,786,624) (230,730)
Changes in assets and liabilities:
Accounts receivable (net) (103,614,831) (536,855,218) (11,483,534)
Inventories (7,532,480) (41,025,932) (877,560)
Prepaid expenses (118,682,660) (3,388,499) (72,481)
Other assets (41,027,398) (133,095,761) (2,846,968)
Due to parent company 7,390,831 12,549,458 268,438
Accrued expenses 33,269,710 214,234,751 4,582,562
Deferred revenue 48,475,140 53,476,391 1,143,880
Trade accounts payable 96,752,137 (43,564,521) (931,861)
Taxes payable 716,599 (4,934,851) (105,558)
Advances from customers (376,700) 9,883,274 211,407
Due from officers and employees (4,570,841) (2,395,538) (51,241)
Other liabilities 11,420,671 (1,990,553) (42,579)
-------------- -------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (164,172,736) (959,467,138) (20,523,360)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditure on plant and equipment (403,743,294) (1,637,077,585) (35,017,703)
Expenditure on license fee -- (23,319,750) (498,818)
Expenditure on investment in affiliates -- (107,769,119) (2,305,222)
Purchase consideration for acquisition (1,738,824,930) (2,199,144,500) (47,040,525)
Proceeds from sale of plant and equipment -- 300,000 6,417
Proceeds from sale of investments 576,800 -- --
-------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (2,141,991,424) (3,967,010,954) (84,855,851)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (157,833,333) (208,166,667) (4,452,763)
Proceeds from issuance of long-term debt 25,718 -- --
Proceeds from short term loans -- -- --
Principal payments under capital lease obligations 3,370,043 7,193,781 153,878
Net proceeds from issuance of common stock 4,052,063,956 -- --
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,897,626,384 (200,972,886) (4,298,885)
-------------- -------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,591,462,224 (5,127,450,978) (109,678,096)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 125,547,453 7,307,624,832 156,312,831
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 1,717,009,677 2,180,173,854 46,634,735
============== ============== ==============
SUPPLEMENTARY INFORMATION
Cash paid towards interest 26,083,111 16,142,248 345,289
Cash paid towards taxes -- -- --
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITY
Additional common stock issued for acquisition of business -- 3,150,655,177 67,393,694
Capital leases 5,699,159 12,879,482 275,497
See accompanying notes to consolidated financial statements.
5
7
SATYAM INFOWAY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN INDIAN RUPEES, EXCEPT SHARE DATA AND AS
OTHERWISE STATED) (INFORMATION AS OF DECEMBER 31, 2000 AND FOR THE PERIOD
ENDED DECEMBER 31, 1999 AND 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation of Financial Statements
The accompanying financial statements have been prepared in
Indian Rupees (Rs.), the national currency of India. Solely for the
convenience of the reader, the financial statements as of and for the
three and nine months ended December 31, 2000 have been translated into
United States dollars at the noon buying rate in New York City on
December 31, 2000 for cable transfers in Indian rupees, as certified for
customs purposes by the Federal Reserve Bank of New York of US$1 = Rs.
46.75. No representation is made that the Indian rupee amounts have
been, could have been or could be converted into United States dollars
at such a rate or at any other certain rate on December 31, 2000 or at
any other date.
(b) Interim Information (unaudited)
Interim information presented in the consolidated financial
statements has been prepared by the management without audit and, in the
opinion of management, includes all adjustments of a normal recurring
nature that are necessary for the fair presentation of the financial
position, results of operations, and cash flows for the periods shown,
is in accordance with the generally accepted accounting principles.
2. ACQUISITION OF BUSINESS
On July 13, 2000, Satyam entered into an agreement (the
"Agreement") to acquire a 100% equity stake in IndiaPlaza.com, Inc.
("IndiaPlaza"). In connection with the completion of the merger, Satyam
issued an aggregate of 480,000 ADSs to the shareholders of IndiaPlaza on
December 15, 2000 of which 230,000 ADSs were placed into an escrow
account to compensate Satyam for potential damages relating to a breach
of any representation, covenant or agreement of IndiaPlaza set forth in
the Agreement, half of which was released on January 1, 2001 and the
balance of which will be released on January 1, 2002.
The acquisition has been accounted for under the purchase
method. The fair value of consideration aggregated to Rs. 373,296,537
resulting in goodwill of Rs. 463,878,280. The goodwill arising out off
the difference between the cost of acquisition and amount of net assets
is being amortized over a period of five years based on management's
estimate.
6
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations of our company should be read in conjunction with the unaudited
financial statements and the related notes included elsewhere in this report and
the audited financial statements and the related notes contained in our Annual
Report on Form 20-F for the fiscal year ended March 31, 2000. This discussion
contains forward-looking statements that involve risks and uncertainties. For
additional information regarding these risks and uncertainties, please see
"Risks Related to Our Business."
OVERVIEW
We were incorporated in December 1995 as an independent business unit of
Satyam Computer Services to develop and offer connectivity-based corporate
services allowing businesses in India to exchange information, communicate and
transact business electronically. Satyam Computer Services, our parent company,
is a leading Indian information technology services company traded on the
principal Indian stock exchanges.
From December 1995 through 1997, we focused on the development and
testing of our private data network. In 1997, we began forming strategic
partnerships with a number of leading technology and electronic commerce
companies, including UUNet Technologies, Open Market, Broadvision and Sterling
Commerce, a unit of SBC Communications, Inc., in order to broaden our product
and service offerings to our corporate customers. In March 1998, we obtained
network certification for conformity with Indian and international network
operating standards from the Technical Evaluation Committee of India. In April
1998, we began offering private network services to businesses in India. Our
initial products and services included electronic data interchange, e-mail and
other messaging services, virtual private networks and related customer support.
In October 1998, we initiated our online content offerings with two
websites: carnaticmusic.com and indiaupdate.com. We also started development of
the predecessor to www.sify.com, our online portal, and other related content
sites for personal finance, movies and automobiles with the goal of offering a
comprehensive suite of websites offering content specifically tailored to Indian
interests worldwide.
On November 6, 1998, the Indian government opened the Internet service
provider marketplace to private competition. Capitalizing on our existing
private data network, we launched our Internet service provider business, Satyam
Online, on November 22, 1998 and became the first private national Internet
service provider in India. We began offering Satyam Online Internet access and
related services to India's consumer market as a complement to the network
services offered to our business customers. Our Satyam Online service was the
first in India to offer ready-to-use CD-ROMs enabling online registration and
immediate usage.
In October 1999, we completed our initial public offering and issued
19,205,000 ADSs (representing 4,801,250 equity shares) at a price of $4.50 per
ADS. We received approximately $79.2 million, net of underwriting discounts,
commissions and other offering costs.
In November 1999, we purchased 24.5% of the outstanding shares of
IndiaWorld Communications for a cash purchase price of Rs.1,222 million. In
connection with this purchase, we acquired an option to purchase the remaining
75.5% of the outstanding shares in IndiaWorld Communications for a cash purchase
price of Rs.3,765 million. In June 2000, we amended the option agreement to
provide for the payment of the exercise price by us with a mix of equity shares
and cash. We completed the acquisition by exercising the option in June 2000
through the payment of Rs.2,154 million in cash and the issuance of 268,500
equity shares. For United States GAAP reporting purposes, the financial
statements of IndiaWorld Communications have been consolidated with our
financial statements from and after December 1, 1999. The acquisition has been
accounted for as a purchase. We are amortizing the goodwill on a straight line
basis over a period of five years. Most of the purchase price represented
goodwill.
IndiaWorld Communications recognized Rs.14.0 million, Rs.37.6 million
and Rs.15.3 million of revenue in fiscal 1999 and 2000 and the quarter ended
December 31, 2000, respectively. IndiaWorld Communications derives its revenues
primarily from third-party advertising, web design and hosting fees and, to a
lesser extent, commissions from electronic commerce transactions on its
websites.
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IndiaWorld Communications' cost of revenues were Rs.7.4 million, Rs.14.4
million and Rs.5.3 million, respectively, during these periods. IndiaWorld
Communications had net income of Rs.11,256, Rs.568,152 and a net loss of Rs.1.4
million, respectively, during these periods.
In February 2000, we completed a secondary offering and issued 1,868,700
ADSs (representing 467,175 equity shares) at a price of $80.00 per ADS. We
received approximately $141.7 million, net of underwriting discounts, commission
and other costs.
In July 2000, we acquired a 25% stake in CricInfo Limited, a private
company incorporated in the UK, through the issuance of 2,204,720 ADSs
(representing 551,180 equity shares). Also in July 2000, we entered into an
agreement to acquire all of the outstanding capital stock of Indiaplaza.com, a
private company incorporated in California. We completed our acquisition of
Indiaplaza.com in December 2000 through the issuance of an aggregate of 480,000
ADSs (representing 120,000 equity shares) to the former equity holders of
Indiaplaza.com. A portion of those shares are being held by an escrow agent to
compensate us for potential damages relating to a breach of the Merger Agreement
and will be released on January 1, 2002 if no such breach is identified.
In the ordinary course of our business, we regularly engage in
discussions and negotiations relating to potential investments, strategic
partnerships, joint ventures and acquisitions for cash, securities or a
combination thereof. Some of these discussions may also contemplate the other
party making an investment in our company.
We currently operate India's largest private data network utilizing
Internet protocol with points of presence in 46 of the largest metropolitan
areas in India as of December 31, 2000. As of December 31, 2000, we had more
than 650 corporate customers for our private network services and more than
400,000 subscribers for our Satyam Online services. During December 2000, our
websites generated approximately 130 million page views.
We conduct our business in India and most of our revenues and expenses
are denominated in Indian rupees. Our foreign exchange loss was Rs.5,613,
Rs.615,189 and a gain of Rs.5,415,274 for fiscal 1998, 1999 and 2000,
respectively.
REVENUES
For reporting purposes, we classify our revenues into three divisions:
- corporate network and e-consulting services;
- consumer Internet access services; and
- online portal and content offerings.
Our corporate network and e-consulting services division derives its
revenues from dial-up and dedicated Internet access, electronic commerce, e-mail
and other messaging services, virtual private networks and web-based solutions.
An important asset in this business is the quality and reach of our network
which, as of the date of this Report, continues to be the largest IP network in
India. Our corporate private network customers typically enter into one-year
arrangements that provide for an initial installation fee and recurring service
fees. E-consulting is generally charged on a fixed-price basis. We derive
revenues from website hosting based upon our customer's bandwidth requirements,
and we charge co-location customers for use of our physical facilities. We also
generate a portion of our revenues through the sale of third-party hardware. Our
corporate network and technology services division accounted for approximately
87.1% and 42.5% of our revenues in fiscal 1999 and 2000, respectively, and 73.9%
in the current quarter.
Our consumer Internet access services division derives its revenues
primarily from the "Satyam Online" dial up business and the "Iway" public
Internet access business. We offer our prepaid subscriptions in a number of time
period and pricing plans through ready-to-use CD-ROMs sold to our distribution
partners. Our distribution partners resell the CD-ROMs to consumers for online
registration and immediate Internet access. Revenues are recognized ratably as
the prepaid subscription is used with any unused portion recognized as revenues
at the expiration date of the subscription. We also generate revenues through
international roaming and e-mail registration fees. At December 31, 2000, there
were approximately 220 Iway centers operational providing Internet access to
consumers on a non-subscription basis. Our consumer Internet access services
division accounted for approximately 12.9% and 52.5% of our revenues in fiscal
1999 and 2000, respectively, and 19.4% in the current quarter.
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Our online portal and content offerings division derives revenues from
third-party advertising and commissions from electronic commerce transactions on
our websites. Advertising fees are recognized over the period in which the
advertisements are hosted on our websites. This division accounted for
approximately 6.6% of our revenues for the most recent quarter.
EXPENSES
Cost of revenues for the corporate network and services division is
divided into three groups: corporate Internet access, e-consulting corporate
network and electronic commerce products, and web development. Cost of revenues
for corporate Internet access consists of telecommunications costs necessary to
provide service, customer support costs and the cost of providing network
operations. Cost of revenues for corporate network and electronic commerce
consists primarily of third-party software and hardware purchased from our
strategic partners for resale, direct labor costs for initial installation and
recurring customer support and network operation and associated
telecommunications costs. Cost of revenues for web development, website hosting
and co-location includes direct labor and associated telecommunications costs.
Cost of revenues for the consumer Internet access services division
consists primarily of recurring telecommunications costs necessary to provide
service to subscribers. Telecommunications costs include the costs of providing
local telephone lines to our points of presence, the costs of using third-party
networks pursuant to service agreements and leased line costs. Bandwidth costs
are presently controlled to a significant extent by VSNL, the government
controlled provider which also competes with us in the Internet access business.
Pricing policies by VSNL have recently resulted in the maintenance of high
bandwidth costs. These alleged cost subsidies are the source of political and
legal challenges in India. We are addressing these costs issues through
alternative bandwidth sources and the completion of our own international access
gateways. Until recently, private companies in India were not permitted to
operate their own international gateways. Our initiatives are expected to result
in bandwidth cost relief over the next several quarters.
Another recurring cost is the personnel and related operating expenses
associated with customer support and network operations. We expect that customer
support and network operations expenses will decrease as a percentage of
revenues as we more efficiently utilize these capabilities across a larger
customer base assuming that subscription rates stabilize.
Cost of revenues for consumer Internet access services also includes
startup expenses for new subscribers consisting primarily of the cost of CD-ROMs
and other product media, manuals and associated packaging and delivery costs and
the costs related to the operation of the cybercafes
The cost of revenues for the online portal and content offerings
division includes the labor cost of developing and maintaining our websites, the
cost of third-party software and the cost of obtaining content from third-party
vendors.
Selling, general and administrative expenses consist primarily of
salaries and commissions for sales and marketing personnel; salaries and related
costs for executives, financial and administrative personnel; sales, marketing,
advertising and other brand building costs; travel costs; and occupancy and
overhead costs.
A total of 825,000 equity shares are reserved for issuance under our
Associate Stock Option Plan. As of December 31, 2000, we had granted an
aggregate of 615,660 options (net of 16,140 options forfeited by employees)
under our ASOP with a weighted average exercise price equal to approximately
Rs.2,701 per equity share. We recorded non-cash compensation charges related
to these grants in the aggregate amount of approximately Rs.237.9 million to
be recognized over a three-year period in accordance with vesting provisions.
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We depreciate our tangible assets on a straight-line basis over the
useful life of assets, ranging from two to five years. We depreciate our
intangible assets, including the goodwill recognized in the IndiaWorld and
Indiaplaza acquisitions, on a straight-line basis over five years.
We face significant competitive pricing pressure from VSNL and a number
of new competitors that are entering India's recently opened Internet service
provider market. This competition has resulted in erosion in selling prices in
the consumer Internet access business which continued in the most recent
quarter. In the face of expected increasing competition, we do not anticipate
being able to maintain our present subscriber retention rates as our subscriber
base grows.
In addition to our operations and those of our consolidated
subsidiaries, our financial statements include our pro rata share of the
financial results of those companies in which we have significant,
non-controlling minority interests. These investments are accounted for under
the equity method of accounting.
Since our inception, we have experienced negative cash flow from
operations and have incurred net losses. Our ability to generate positive cash
flow from operations and achieve profitability is dependent on our ability to
continue to grow our revenue base and achieve further operating efficiencies.
For fiscal 1998, 1999, 2000 and the nine months ended December 31, 2000,
we incurred negative cash flow from operations of approximately Rs.74.0 million,
Rs.171.4 million, Rs.373.9 million and Rs.959.5 million ($20.5 million),
respectively. For fiscal 1998, 1999, 2000 and the nine months ended December 31,
2000, we incurred net losses of approximately Rs.100.6 million, Rs.187.4
million, Rs.381.9 million and Rs.1,654.6 million ($35.4 million), respectively.
Giving pro forma effect to our acquisition of IndiaWorld Communications as if it
had occurred at the beginning of each period, we would have incurred net losses
of approximately Rs.535 million and Rs.612 million for fiscal 1999 and 2000,
respectively. We may not be able to realize sufficient future revenues to offset
our present investment in network infrastructure and online content offerings or
achieve positive cash flow or profitability in the future. As of December 31,
2000, we had an accumulated deficit of approximately Rs.2,351.5 million ($50.3
million). For additional information, please see "Risks Related to Our
Business."
RESULTS OF OPERATIONS
Quarter ended December 31, 2000 compared to quarter ended December 31, 1999
Revenues. We recognized Rs.471.6 million ($10.1 million) in revenues for
the quarter ended December 31, 2000, as compared to Rs.184.7 million for the
quarter ended December 31, 1999, representing an increase of Rs.286.9 million,
or 155%. Current quarter revenues exclude Rs.203.9 million ($4.3 million) of
deferred income primarily representing consumer access subscriptions which had
been purchased but not yet used by the consumer subscribers. This increase was
attributable to a significant increase in the corporate services businesses
which increased by 340% over the same period in the prior year. The corporate
services businesses successfully obtained a significant number of new orders
from prominent customers with operation throughout India. This growth offset a
reduction in Internet access revenues due to continuing decreases in average
selling prices resulting from competition, despite an increase in the number of
subscribers. From December 31, 1999 to December 31, 2000, our number of
corporate customers grew from more than 350 to more than 650, and our number of
Internet access subscribers grew from more than 118,000 to more than 400,000.
Cost of Revenues. Cost of revenues were Rs.404.7 million ($8.7 million)
or 86% of revenues for the quarter ended December 31, 2000, compared to Rs.77.7
million or 42% of revenues for the quarter ended December 31, 1999, representing
an increase of Rs.327.0 million, or 421%. This increase was primarily
attributable to a Rs.65.0 million increase in software and hardware purchased
for resale, a Rs.214.0 million increase in leased line charges due to the
increased capacity of our network backbone, Rs.9.2 million towards web
development charges and a Rs.33.6 million increase in direct personnel costs for
web development and customer technical support. Bandwidth costs
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remained relatively high during the quarter particularly in light of the revenue
pressures in the Internet access business.
Selling, general and administrative expenses. Selling, general and
administrative expenses were Rs.571.3 million ($12.2 million) for the quarter
ended December 31, 2000, compared to Rs.171.2 million for the quarter ended
December 31, 1999, representing an increase of Rs.400.1 million, or 234%. This
increase was primarily attributable to a growth in staff from 535 as of December
31, 1999 to 1,160 as of December 31, 2000 resulting in an increase in employee
expenses of Rs.66.4 million, a Rs.122.8 million increase in marketing expenses
relating to the launch of our consumer Internet access services division and
portals division, and increases in travel expenses of Rs.27.5 million, office
rental expenses of Rs.21.0 million, increase in legal and professional expenses
of Rs.18.0 million and increase in telephone charges of Rs.15.7 million.
Depreciation and amortization. Depreciation and amortization was
Rs.361.8 million ($7.7 million) for the quarter ended December 31, 2000,
compared to Rs.31.1 million for the quarter ended December 31, 1999,
representing an increase of Rs.330.7 million or 1,063%. This increase was
primarily attributable to capital expenditures of Rs.1,637 million during the
period from March 31, 2000 to December 31, 2000, including the purchase of
routers, modems, ports, servers and other capital equipment in connection with
the addition of points of presence to our network, amortization of deferred
compensation charge amounting to Rs.23.9 million ($0.5 million) and amortization
of goodwill arising out of the IndiaWorld Communications and other investments
amounting to Rs.278.0 million ($5.9 million).
Other income (net). Other income, net, was Rs.59.6 million ($1.2
million) for the quarter ended December 31, 2000 compared to Rs.27.6 million for
the quarter ended December 31, 1999 representing an increase of Rs.29.3 million
or 106%. This increase was primarily attributable to interest income earned on
deposits placed with banks amounting to Rs.39.9 million ($0.8 million).
Net Loss. Our net loss was Rs.861.4 million ($18.4 million) for the
quarter ended December 31, 2000, compared to a net loss of Rs.73.3 million for
the quarter ended December 31, 1999.
Nine months ended December 31, 2000 compared to nine months ended December 31,
1999
Revenues. We recognized Rs.1,228.5 million ($26.3 million) in revenues
for the nine months ended December 31, 2000, as compared to Rs.392.9 million for
the nine months ended December 31, 1999, representing an increase of Rs.835.6
million, or 213%. Revenues for the nine months ended December 31, 2000 exclude
Rs.203.9 million ($4.3 million) of deferred income representing
consumer access subscriptions which had been purchased but not yet used by the
consumer subscribers. This increase was primarily attributable to increase in
number of customers and introduction of new service offerings.
Cost of Revenues. Cost of revenues were Rs.874.9 million ($18.7 million)
or 71% of revenues for the nine months ended December 31, 2000, compared to
Rs.184.8 million or 47% of revenues for the nine months ended December 31, 1999,
representing an increase of Rs.690.1 million, or 373%. This increase was
primarily attributable to a Rs.134.3 million increase in software and hardware
purchased for resale, a Rs.407.7 million increase in leased line charges due to
the increased capacity of our network backbone, Rs.13.1 million towards web
development charges and a Rs.123.7 million increase in direct personnel costs
for web development and customer technical support.
Selling, general and administrative expenses. Selling, general and
administrative expenses were Rs.1,485.6 million ($31.8 million) for the nine
months ended December 31, 2000, compared to Rs.380.4 million for the nine months
ended December 31, 1999, representing an increase of Rs.1,105.2 million, or
291%. This increase was primarily attributable to a growth in staff from 535 as
of December 31, 1999 to 1,160 as of December 31, 2000 resulting in an increase
in employee expenses of Rs.240.0 million, a Rs.391.2 million increase in
marketing expenses relating to the launch of our consumer Internet access
services division and portals division, and increases
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in travel expenses of Rs.67.5 million, office rental expenses of Rs.44.0
million and increase in telephone charges of Rs.60.1 million.
Depreciation and amortization. Depreciation and amortization was
Rs.984.0 million ($21.0 million) for the nine months ended December 31, 2000,
compared to Rs.114.8 million for the nine months ended December 31, 1999,
representing an increase of Rs.869.2 million or 757%. This increase was
primarily attributable to capital expenditures of Rs.1,637 million during
the period from March 31, 2000 to December 31, 2000, including the purchase of
routers, modems, ports, servers and other capital equipment in connection with
the addition of points of presence to our network, amortization of deferred
compensation charge amounting to Rs.71.2 million ($1.5 million) and
amortization of goodwill arising out of the IndiaWorld Communications
acquisition and other investments amounting to Rs.637.3 million ($13.6 million).
Other income (net). Other income, net, was Rs.371.3 million ($7.9
million) for the period ended December 31, 2000, compared to Rs.7.5 million for
the period ended December 31, 1999, representing an increase of Rs.363.8
million. This increase was primarily attributable to interest income earned on
deposits placed with banks amounting to Rs.238.0 million.
Net Income. Our net loss was Rs.1,654.6 million ($35.4 million) for the
nine months ended December 31, 2000, compared to a net loss of Rs.202.0 million
for the nine months ended December 31, 1999.
SEASONALITY
Given the early stage of the development of the Internet in India, the
rapidly evolving nature of our business and our limited operating history, we
cannot predict to what extent, if at all, our operations will prove to be
seasonal.
LIQUIDITY AND CAPITAL EXPENDITURES
Since inception, we have financed our operations primarily through a
combination of equity sales and borrowings from institutions and banks. During
fiscal 1998, 1999 and 2000, we received Rs.38.5 million, Rs.307.5 million, and
Rs.10,220.0 million, respectively, in net proceeds from the sale of equity
shares.
In July 1999, we agreed to sell 481,000 equity shares to Sterling
Commerce for $5.0 million. We completed this transaction in September 1999 and
used the funds for general corporate purposes, primarily the repayment of debt.
In October 1999, we completed our initial public offering and issued
19,205,000 ADSs (representing 4,801,250 equity shares) at a price of $4.50 per
share. We received approximately $79.2 million in cash, net of underwriting
discounts, commissions and other offering costs. We used approximately $28.0
million of these proceeds to purchase 24.5% of the outstanding shares of
IndiaWorld Communications and an additional $12.0 million as a non-refundable
deposit towards the exercise of our option to complete the acquisition by
purchasing the remaining 75.5% of the outstanding shares of IndiaWorld
Communications. We also used approximately $24.7 million of these proceeds to
fund network expansion and enhancements and to advertise and promote our brand.
We used the balance of the proceeds from our initial public offering for general
corporate purposes. Pending this use we invested these proceeds in high quality,
interest bearing instruments.
In February 2000, we completed a secondary offering and issued 1,868,700
ADSs (representing 467,175 equity shares) at a price at $80.00 per ADS. We
received approximately $141.7 million, net of underwriting discounts, commission
and other costs. We used approximately $48 million of the proceeds from our
public offering to complete our acquisition of IndiaWorld Communications. The
balance of the proceeds are being used for general corporate purposes. Pending
this use we have invested these proceeds in high quality, interest bearing
instruments.
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The following table summarizes our statements of cash flows for the
periods presented:
FISCAL YEAR ENDED MARCH 31,
------------------------------------------------
1998 1999 2000
------------ ------------ ------------
INDIAN RUPEES
------------------------------------------------
(IN THOUSANDS)
Net loss ........................................... Rs.(100,590) Rs.(187,376) Rs.(381,897)
Net decrease (increase) in working capital ......... 7,257 (33,212) (254,557)
Other adjustments for non-cash items ............... 19,383 49,200 262,516
Net cash provided by (used in) operating activities (73,950) (171,388) (373,938)
Net cash provided by (used in) investing activities (77,070) (145,999) (2,611,694)
Net cash provided by (used in) financing activities 159,449 443,023 10,167,709
Net increase (decrease) in cash and cash equivalents 8,429 115,636 7,182,077
NINE MONTHS ENDED DECEMBER 31,
------------------------------
2000 2000
-------------- ------------
U.S. DOLLARS
-------------- ------------
(IN THOUSANDS)
Net loss ........................................... Rs.(1,654,637) $ (35,393)
Net decrease (increase) in working capital ......... (477,107) (10,205)
Other adjustments for non-cash items ............... 1,172,277 25,075
Net cash provided by (used in) operating activities (959,467) (20,523)
Net cash provided by (used in) investing activities (3,967,011) (84,856)
Net cash provided by (used in) financing activities (200,973) (4,299)
Net increase (decrease) in cash and cash equivalents (5,127,451) (109,678)
Our principal capital and liquidity needs historically have related to
developing our network infrastructure and our corporate network and electronic
commerce products, establishing our customer service and support operations,
developing our sales and marketing activities and for general working capital
needs. Prior to 1998, our capital needs were primarily met by funding from our
parent company, Satyam Computer Services, and borrowings from institutions and
banks. As we placed greater emphasis on expanding our network infrastructure and
developing our consumer Internet access and online portal and content services,
we sought additional capital from other sources, including vendor capital leases
and other vendor financing arrangements and through private placements of our
securities. During recent periods, we have also expended significant funds in
our acquisition and investment program, including the IndiaWorld transaction.
Cash used in operating activities for the nine months ended December 31,
2000 was Rs.959.5 million ($20.5 million) primarily attributable to a net loss
of Rs.1,654,6 million ($35.4 million), increases in accounts receivable of
Rs.536.9 million ($11.5 million), prepaid expenses of Rs.3.4 million ($72,481)
and other assets of Rs.133.1 million ($2.8 million), inventories of Rs 41.0
million ($0.9 million) partially offset by depreciation of plant and equipment
and amortization of Rs.984.0 million ($21.0 million), an increase in trade
accounts payable by Rs.43.6 million ($0.9 million) and an increase in deferred
revenue of Rs.53.5 million ($1.1 million). Cash used in investing activities
during the nine months ended December 31, 2000 was Rs.3,967.0 million ($84.9
million), principally as a result of the purchase consideration paid for
acquisition of IndiaWorld Communications amounting to Rs.2,199 million ($47.0
million), expenditure on license fees of Rs.23.3 million ($0.5 million) and an
amount of Rs.1,637 million ($35.0 million) towards the purchase of routers,
modems, ports, servers and other capital equipment in connection with the
expansion of our servers and other capital equipment in connection with the
expansion of our network. Cash provided by financing activities was Rs.201.0
million ($4.3 million) for the nine months ended December 31, 2000, which
consisted primarily of repayment of Rs.107.5 million ($2.3 million) of
debentures to IDBI Bank and repayment of Rs.100.0 million ($2.2 million) of term
loan to Exim Bank.
Our aggregate billings for quarter ended December 31, 2000 were
approximately Rs.675.6 million ($14.4 million). This amount represents amounts
receivable by us from our customers for services to be provided over various
periods of time. In accordance with our revenue recognition policy, we
recognized Rs.471.6 million ($10.0 million) and deferred Rs.203.9 million ($4.3
million) of billings in the quarter ended December 31, 2000. Our deferred
revenues balance was Rs.203.9 million ($4.3 million) as of December 31, 2000.
INCOME TAX MATTERS
As of December 31, 2000, we had a net operating loss carryforward of
approximately Rs.2,087 million ($44.6 million) for financial reporting purposes.
Under Indian law, loss carryforwards from a particular year may be used to
offset taxable income over the next eight years.
The statutory corporate income tax rate in India is currently 35.0%.
This tax rate is presently subject to a 12.0% surcharge resulting in an
effective tax rate of 39.2%. The tax surcharge was recently increased from 10%
to 12% to fund earthquake relief. We cannot assure you that the surcharges will
be in effect for a limited period of time or that additional surcharges will not
be implemented by the Government of India. Dividends declared, distributed or
paid by an Indian corporation are subject to a dividend tax of 22.4%, including
the presently applicable surcharges, of the total amount of the dividend
declared, distributed or paid. This
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tax is not paid by shareholders nor is it a withholding requirement, but rather
it is a direct tax payable by the corporation.
EFFECTS OF INFLATION
Inflation has not had a significant effect on our results of operations
and financial condition to date. However, India has experienced relatively high
rates of inflation. According to the Economist Intelligence Unit, the rates of
inflation in India for 1997, 1998 and 1999 were 7.2%, 13.2%, and 5.0%,
respectively. Under our Internet service provider license, we are given the
right to establish the prices we charge to our subscribers, as determined by
market forces. However, under the conditions of our license, the Telecom
Regulatory Authority of India may review and fix the prices we charge our
subscribers at any time. If the Telecom Regulatory Authority were to fix prices
for the Internet service provider services we provide, we might not be able to
increase the prices we charge our subscribers to mitigate the impact of
inflation, which could have a material adverse effect on our business, results
of operations and financial condition.
DEBT FINANCING
In March 2000, we privately placed 1,075,000 secured redeemable,
non-convertible debentures of Rs.100 each with IDBI Bank Ltd. resulting in net
proceeds of Rs.107.5 million. These debentures are secured by our buildings and
are redeemable at par in March 2002.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. We
currently do not engage or plan to engage in derivative instruments or hedging
activities.
RISKS RELATED TO OUR BUSINESS
Any investment in our ADSs involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the other information contained in this report, before you decide to buy our
ADSs. If any of the following risks actually occur, our company could be
seriously harmed. In any such case, the market price of our ADSs could decline,
and you may lose all or part of the money you paid to buy our ADSs.
RISKS RELATED TO INVESTMENTS IN INDIAN COMPANIES
We are incorporated in India, and virtually all of our assets and our
employees are located in India. Consequently, our financial performance and the
market price of our ADSs will be affected by changes in exchange rates and
controls, interest rates, Government of India policies, including taxation
policies, as well as political, social and economic developments affecting
India.
Political instability could halt or delay the liberalization of the
Indian economy and adversely affect business and economic conditions in
India generally and our business in particular.
During the past decade, the Government of India has pursued policies of
economic liberalization, including significantly relaxing restrictions on the
private sector. Nevertheless, the role of the Indian central and state
governments in the Indian economy as producers, consumers and regulators has
remained significant. The Government of India has changed five times since 1996.
The rate of economic liberalization could change, and specific laws and policies
affecting technology companies, foreign investment, currency exchange rates and
other matters affecting investment in our securities could change as well. A
significant change in India's economic liberalization and deregulation policies
could adversely affect business and economic conditions in India generally and
our business in particular.
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Regional conflicts in South Asia could adversely affect the Indian
economy and cause our business to suffer.
South Asia has from time to time experienced instances of civil unrest
and hostilities among neighboring countries, including between India and
Pakistan. In April 1999, India and Pakistan conducted long-range missile tests.
Since May 1999, military confrontations between India and Pakistan have occurred
in the disputed Himalayan region of Kargil and other border areas. Further, in
October 1999 the leadership of Pakistan changed as a result of a coup led by the
military. Events of this nature in the future could influence the Indian economy
and could have a material adverse effect on the market for securities of Indian
companies, including our ADSs, and on the market for our services.
Indian law and the terms of our Internet service provider license
contain restrictive provisions that limit our ability to raise capital,
to issue equity securities in consideration for acquisitions we may make
or to be acquired which could prevent us from constructing our network
and operating our business or entering into a transaction that is in the
best interests of our stockholders.
Indian law and the terms of our Internet service provider license
constrain our ability to raise capital through the issuance of equity or
convertible debt securities or to issue equity securities in consideration for
acquisitions we may make. Guidelines issued by the Department of Policy and
Promotion, Ministry of Industry in January 1997 state that the maximum foreign
equity investment in an Indian company engaged in business in the
telecommunications sector is 49%. Additional guidelines issued in November 1998
provide that the maximum foreign equity investment in an Indian company acting
as an Internet service provider is also 49%. This 49% limit applies to foreign
equity investment in our company. Likewise, our Internet service provider
license provides that the total foreign equity in our company may not, at any
time, exceed 49% of our total equity.
Approximately 44.7% of our equity interests are presently held by
foreign investors. As a result of the 49% limit on foreign equity ownership, we
will not be permitted to sell more than an additional 4.3% of our equity shares
to foreign investors in the future. We cannot assure you that other forms of
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or are not available on acceptable terms, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance our infrastructure or services, or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be materially adversely affected by any such
limitation. The 49% limit on foreign equity ownership also restricts our ability
to be acquired by a non-Indian company because a foreign company is prohibited
from acquiring a majority of our equity shares. Likewise, the terms of our
Internet service provider license prevents us from transferring the license to a
third person. This may prevent us from entering into a transaction which would
otherwise be beneficial for our company and the holders of our equity shares.
We are subject to foreign investment restrictions under Indian law that
limit our ability to attract foreign investors which, together with the
lack of a public market for our equity shares, may adversely impact the
value of our ADSs.
Currently there is no public trading market for our equity shares in
India nor can we assure you that we will take steps to develop one. Our equity
securities are not traded publicly in India, but are only traded on Nasdaq
through the ADSs as described in this report. Under current Indian laws and
regulations, our depositary cannot accept deposits of outstanding equity shares
and issue ADRs evidencing ADSs representing such equity shares without prior
approval of the Government of India. To our knowledge, as of the date of this
report, such an approval has never been granted by the Government of India in
respect of ADSs traded in the United States. If you elect to surrender your ADSs
and receive equity shares, you will not be able to trade those equity shares on
any securities market. Under current Indian laws and regulations, you will be
prohibited from re-depositing those outstanding equity shares with our
depositary without approval of the Government of India.
If in the future a market for our equity shares is established in India
or another market outside of the United States, those shares may trade at a
discount or premium to the ADSs in part because of restrictions on foreign
ownership of the underlying shares. Under current Indian regulations and
practice, the approval of the Reserve Bank of India is required for the sale of
equity shares underlying ADSs by a non-resident of India to a resident of India
as well as for renunciation of rights to a resident of India, unless the sale of
equity shares underlying the ADSs is through a recognized stock exchange or in
connection with the offer made under the regulations regarding
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takeovers. Since exchange controls still exist in India, the Reserve Bank of
India will approve the price at which the equity shares are transferred based on
a specified formula, and a higher price per share may not be permitted. Holders
who seek to convert the rupee proceeds from a sale of equity shares in India
into foreign currency and repatriate that foreign currency from India will have
to obtain Reserve Bank of India approval for each transaction. We cannot assure
you that any required approval from the Reserve Bank of India or any other
government agency can be obtained.
Because we operate our business in India, exchange rate fluctuations may
affect the value of our ADSs independent of our operating results.
The exchange rate between the rupee and the U.S. dollar has changed
substantially in recent years and may fluctuate substantially in the future.
During the three-year period from January 1, 1998 through December 31, 2000, the
value of the rupee against the U.S. dollar declined by approximately 19%.
Devaluations of the rupee will result in higher expenses to our company for the
purchase of capital equipment, such as routers, modems and other
telecommunications and computer equipment, which is generally manufactured in
the U.S. In addition, our market valuation could be materially adversely
affected by the devaluation of the rupee if U.S. investors analyze our value
based on the U.S. dollar equivalent of our financial condition and results of
operations.
Economic sanctions imposed on India by the United States could restrict
our access to technology and limit our ability to construct our network
and operate our business.
In May 1998, the United States imposed economic sanctions against India
in response to India's testing of nuclear devices. Since then, the United States
has waived some of these sanctions subsequent to its discussions with the
Government of India. The economic sanctions imposed on India to date have not
had a material impact on our company. However, these sanctions, or additional
sanctions, could restrict our access to technology that is available only in the
United States and that is required to construct our network and operate our
business. We cannot assure you that any of these sanctions will continue to be
waived, that additional economic sanctions of this nature will not be imposed,
or that these sanctions or any additional sanctions that are imposed will not
have a material adverse effect on our business or on the market for our ADSs in
the United States.
The Government of India may change its regulation of our business or the
terms of our license to provide Internet access services without our
consent, and any such change could decrease our revenues and/or increase
our costs which would adversely affect our operating results.
Our business is subject to government regulation under Indian law and to
significant restrictions under our Internet service provider license issued by
the Government of India. These regulations and restrictions include the
following:
- Our Internet service provider license has a term of 15 years and
we have no assurance that the license will be renewed. If we are
unable to renew our Internet service provider license in 2013
for any reason, we will be unable to operate as an Internet
service provider in India and will lose one of our primary
sources of revenue.
- The Government of India and the Telecom Regulatory Authority of
India, or TRAI, maintain the right to regulate the prices we
charge our subscribers. The success of our business model
depends on our ability to price our services at levels we
believe are appropriate. If the government or the TRAI sets a
price floor, we may not be able to attract and retain
subscribers. Likewise, if the government or the TRAI sets a
price ceiling, we may not be able to generate sufficient
revenues to fund our operations.
- The Government of India maintains the right to take over our
entire operations or revoke, terminate or suspend our license
for national security and similar reasons without compensation
to us. If the Government of India were to take any of these
actions, we would be prevented from conducting all or part of
our business.
We had outstanding performance guarantees for various statutory purposes
totaling Rs.42.7 million ($0.9 million) as of December 31, 2000. These
guarantees are generally provided to government agencies, primarily the TRAI, as
security for compliance with and performance of terms and conditions contained
in an Internet service provider license and VSNL towards the supply and
installation of an electronic commerce platform.
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These guarantees may be seized by the governmental agencies if they suffer any
losses or damage by reason of our failure to perform our obligations. Any
failure on our part to comply with governmental regulations and the terms of our
Internet service provider license could result in the loss of our license and
any amount outstanding as performance guarantees, which would also prevent us
from carrying on a very significant part of our business. Further, additional
laws regulating telecommunications, electronic records, the enforceability of
electronic documents and the liability of network service providers are under
consideration and if enacted could impose additional restrictions on our
business.
Surcharges on Indian income taxes will increase our tax liability by an
additional 12% and decrease any profits we might have in the future.
The statutory corporate income tax rate in India is currently 35.0%.
This tax rate is presently subject to a 12.0% surcharge resulting in an
effective tax rate of 39.2%. The tax surcharge was recently increased from 10.0%
to 12.0% to fund earthquake relief. However, we cannot assure you that the 12.0%
surcharge will be repealed in the future or that additional surcharges will not
be implemented by the Government of India. Dividends declared, distributed or
paid by an Indian corporation are subject to a tax of 22.4%, including the
presently applicable surcharge, of the total amount of the dividend declared,
distributed or paid at the corporate level. This tax is not paid by stockholders
nor is it a withholding requirement, but rather it is a direct tax payable by
the corporation.
RISKS RELATED TO THE INTERNET MARKET IN INDIA
Our success will depend in large part on the increased use of the
Internet by consumers and businesses in India. However, our ability to exploit
the Internet service provider and other data service markets in India is
inhibited by a number of factors. If India's limited Internet usage does not
grow substantially, our business may not succeed.
The success of our business depends on the acceptance of the Internet in
India which may be slowed or halted by high bandwidth costs and other
technical obstacles in India.
Bandwidth, the measurement of the volume of data capable of being
transported in a communications system in a given amount of time, remains very
expensive in India, especially when compared to bandwidth costs in the United
States. Bandwidth rates are commonly expressed in terms of Kbps (kilobits per
second, or thousands of bits of data per second) or Mbps (megabits per second,
or millions of bits of data per second). Prices for bandwidth capacity are set
by the Indian government and the TRAI and have remained high due to, among other
things, capacity constraints. High bandwidth prices have continued
notwithstanding rapid increases in demand for consumer Internet access and a
very competitive pricing environment for those services which has resulted in
decreasing average selling prices. Further, limitations in network architecture
in India limit Internet connection speeds to 28 Kbps and below, less than the 33
to 56 Kbps connection speeds on conventional dial-up telephone lines, and
significantly less than the up to 1.5 Mbps connection speed on cable modems, in
the United States. These speed and cost constraints may severely limit the
quality and desirability of using the Internet in India.
The limited installed personal computer base in India limits our pool of
potential customers and restricts the amount of revenues that our
consumer Internet access services division may generate.
The market penetration rates of personal computers and online access in
India are far lower than such rates in the United States. For example, according
to International Data Corporation, in 1999 the Indian market contained
approximately 1.0 million Internet users compared to a total population in India
of 986.9 million, while the U.S. market contained approximately 80.8 million
Internet users compared to a total population in the U.S. of 270.3 million.
Alternate methods of obtaining access to the Internet, such as through cable
television modems or set-top boxes for televisions, are currently not popular in
India. There can be no assurance that the number or penetration rate of personal
computers in India will increase rapidly or at all or that alternate means of
accessing the Internet will develop and become widely available in India.
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The high cost of accessing the Internet in India limits our pool of
potential customers and restricts the amount of revenues that our
consumer Internet access services division may generate.
Our growth is limited by the cost to Indian consumers of obtaining the
hardware, software and communications links necessary to connect to the Internet
in India. If the costs required to access the Internet do not significantly
decrease, most of India's population will not be able to afford to use our
services. The failure of a significant number of additional Indian consumers to
obtain affordable access to the Internet would make it very difficult to execute
our business plan.
The success of our business depends on the acceptance and growth of
electronic commerce in India which is uncertain and, to a large extent,
beyond our control.
Many of our existing and proposed products and services are designed to
facilitate electronic commerce in India, although there is relatively little
electronic commerce currently being conducted in India. Demand and market
acceptance for these products and services by businesses and consumers,
therefore, are highly uncertain. Critical issues concerning the commercial use
of the Internet, such as legal recognition of electronic records, validity of
contracts entered into online and the validity of digital signatures, remain
unresolved. In addition, many Indian businesses have deferred purchasing
Internet access and deploying electronic commerce initiatives for a number of
reasons, including the existence or perception of, among other things:
- inconsistent quality of service;
- need to deal with multiple and frequently incompatible vendors;
- inadequate legal infrastructure relating to electronic commerce
in India;
- lack of security of commercial data such as credit card numbers;
and
- low number of Indian companies accepting credit card numbers
over the Internet.
If usage of the Internet in India does not substantially increase and
the legal infrastructure and network infrastructure in India are not further
developed, we are not likely to realize sufficient benefits from our investment
in the development of electronic commerce products and services.
RISKS RELATED TO SATYAM INFOWAY
Our limited operating history makes it difficult to evaluate our
business.
We commenced operation of our private data network business in April
1998 and launched our Internet service provider operations and Internet portal
website in November 1998. Accordingly, we have a limited operating history to
evaluate our business. You must consider the risks and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in the new and rapidly evolving Internet service markets. These risks
and difficulties include our ability to:
- continue to develop and upgrade our technology, including our
network infrastructure;
- maintain and develop strategic relationships with business
partners;
- offer compelling online services and content; and
- promptly address the challenges faced by early stage, rapidly
growing companies which do not have an experience or performance
base to draw on.
Not only is our operating history short, but we have determined to
compete in three businesses that we believe are complementary. These three
businesses are corporate network and e-consulting services, Internet service
provider and online portal. Our three businesses were started at different
times and have only been functioning together since late in 1998. We do not yet
know whether these businesses will prove complementary. We cannot assure you
that we will successfully address the risks or difficulties described above.
Failure to do so could lead to an inability to attract and retain subscribers
for our Internet services and corporate customers for our network services as
well as the loss of advertising revenues.
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We have a history of losses and negative cash flows and anticipate this
to continue because our business plan, which is unproven, calls for
additional subscribers and other customers to attain profitability.
Since our founding, we have incurred significant losses and negative
cash flows. As of December 31, 2000, we had an accumulated deficit of
approximately $50.3 million. We have not been profitable and expect to incur
operating losses as we expand our services, invest in expansion of our network
infrastructure and sales and marketing staff, and advertise and promote our
brand. Our business plan assumes that consumers in India will be attracted to
and use Internet access services and content available on the Internet in
increasing numbers. Our business plan also assumes that businesses in India will
demand private network and related electronic commerce services. This business
model is not yet proven in India, and we cannot assure you that we will ever
achieve or sustain profitability or that our operating losses will not increase
in the future.
Our ability to compete in the Internet service provider market is
hindered by the fact that our largest competitor is a
government-controlled provider of international telecommunications
services in India which enjoys significant competitive advantages over
our company.
Videsh Sanchar Nigam Limited, or VSNL, is a government-controlled
provider of international telecommunications services in India. VSNL is also the
largest Internet service provider in India which we estimate had approximately
540,000 subscribers as of December 31, 2000. This amount is only an estimate
because VSNL does not publicly disclose this information. VSNL enjoys
significant competitive advantages over our company, including the following:
- Longer service history. VSNL has offered Internet service
provider services since August 1995 whereas we have offered
Internet service provider services only since November 1998.
- Access to network infrastructure. Because VSNL is controlled by
the Government of India, it has direct access to network
infrastructure which is owned by the Indian government.
- Greater financial resources. VSNL has significantly greater
total assets and annual revenues than our company.
Recently, VSNL has continued to aggressively reduce consumer Internet
access prices despite the lack of offsetting reductions in prevailing bandwidth
tariffs payable by private competitors, such as our company. We believe that
these practices constitute an improper cross-subsidy funded by VSNL's present
monopoly in long distance telephone service. However, until there is a change in
government policy or judicial action relating to this situation, or we are able
to reduce our bandwidth costs through other means, we will continue to face
difficult market conditions in the consumer access business.
These competitive issues may prevent us from attracting and retaining
subscribers and generating advertising revenue. This could result in loss of
market share, price reductions, reduced margins or negative cash flow for our
company's operations.
We may be required to further lower the rates we charge for our products
and services in response to new pricing models introduced by new and
existing competition in the Internet services market which would
significantly decrease our revenues.
A significant number of new competitors have recently entered India's
recently liberalized Internet service provider market, and we expect additional
competitors to emerge in the near future. As of May 2000, approximately 315
companies had obtained Internet service provider licenses in India, including 54
companies which have obtained licenses to offer Internet service provider
services throughout India. New entrants into the national Internet service
provider market in India may enjoy significant competitive advantages over our
company, including greater financial resources, which could allow them to charge
Internet access fees that are lower than ours in order to attract subscribers.
Since May 2000, we have offered unlimited Internet access to consumers for a
fixed price. A number of our competitors, including Dishnet, Zee Telefilms and
VSNL, also offer unlimited Internet access for a fixed price. In addition, some
competitors offer free Internet service. These factors have resulted in
significant reduction in actual average selling prices for consumer ISP services
over the past several quarters. We expect the market for consumer Internet
access to continue to be highly price competitive.
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Our online portal, www.sify.com, faces significant competition from
well-established Indian content providers, including rediff.com, which
completed its initial public offering in the United States in June 2000. Some of
these sites currently have greater traffic than our site and offer some features
that we do not. Further, the dominant Internet portals continue to be the online
services and search engine companies based in the United States, such as America
Online, Microsoft Network, Yahoo!, Excite@Home and Lycos. These companies have
been developing specially branded or co-branded products designed for audiences
in specific markets. We expect that these companies will deploy services that
are targeted at the Indian market. For example, Yahoo! launched an Indian
service in June 2000.
Our corporate and technology services business faces significant
competition from well-established companies, including Global E-Commerce
Limited, Sprint-RPG Limited and WIPRO-CSD.
Increased competition may result in reduced operating margins or
operating losses, loss of market share and diminished value in our services, as
well as different pricing, service or marketing decisions. We cannot assure you
that we will be able to successfully compete against current and future
competitors.
Our marketing campaign to establish brand recognition and loyalty for
the Satyam Online and SIFY brands could be unsuccessful or, if
successful, may not benefit our company if in the future we are no
longer permitted to use the "Satyam" trademark that we license from
Satyam Computer Services.
In order to expand our customer base and increase traffic on our
websites, we must establish, maintain and strengthen the Satyam Online and SIFY
brands. We plan to increase substantially our marketing expenditures to
establish brand recognition and brand loyalty. If our marketing efforts do not
produce a significant increase in consumer traffic to offset our marketing
expenditures, our losses will be increased or, to the extent that we are
generating profits, our profits will be decreased. Furthermore, our Internet
portal will be more attractive to advertisers if we have a large audience of
consumers with demographic characteristics that advertisers perceive as
favorable. Therefore, we intend to introduce additional and enhanced content,
interactive tools and other services and features in the future in an effort to
retain our current subscribers and users and attract new ones. Our reputation
and brand name could be adversely affected if we are unable to do so
successfully.
"Satyam" is a trademark owned by Satyam Computer Services Limited, or
Satyam Computer Services, our parent company. We have a license to use the
"Satyam" trademark for so long as Satyam Computer Services continues to own at
least 51% of our company. If there is a change of control in our company,
however, Satyam Computer Services may terminate our license to use the "Satyam"
trademark upon two years' prior written notice. Termination of our license to
use the "Satyam" trademark would require us to invest significant funds in
building a new brand name and could have a material adverse effect on our
business, results of operations and financial condition.
If our efforts to retain our subscribers through investment in network
infrastructure and customer and technical support are unsuccessful, our
revenues will decrease without a corresponding reduction in costs.
Our sales, marketing and other costs of acquiring new subscribers are
substantial relative to the fees actually derived from these subscribers.
Accordingly, our long-term success depends to a great extent on our ability to
retain our existing subscribers, while continuing to attract new subscribers. We
invest significant resources in our network infrastructure and in our customer
and technical support capabilities to provide high levels of customer service.
We cannot be certain, however, that these investments will maintain or improve
subscriber retention. We believe that intense competition from our competitors,
some of whom may offer free hours of service or other enticements for new
subscribers, has caused, and may continue to cause, some of our subscribers to
switch to our competitors' services. In addition, some new subscribers use the
Internet only as a novelty and do not become consistent users of Internet
services, and therefore are more likely to discontinue their service. Any
decline in our subscriber retention rate could decrease the revenues generated
by our consumer Internet access services division.
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Our future operating results could fluctuate in part because our
expenses are relatively fixed in the short-term while future revenues
are uncertain, and any adverse fluctuations could negatively impact the
price of our ADSs.
Our revenues, expenses and operating results have varied in the past and
may fluctuate significantly in the future due to a number of factors, many of
which are outside our control. Our business involves significant capital outlays
and, thus, a significant portion of our investment and cost base is relatively
fixed in the short term. Our revenues for the foreseeable future will depend on
the following:
- the products developed by our strategic partners and the usage
thereof by our customers determines the amount of revenues
generated by our corporate network and technology services
division;
- the number of subscribers to our Internet service provider
service and the prevailing prices charged determine the amount
of revenues generated by our consumer Internet services
division; and
- advertising and electronic commerce activity on www.sify.com
determines the amount of revenues generated by our online portal
and content offerings division.
Our future revenues are difficult to forecast and, in addition to the
foregoing, will depend on the following:
- new Internet sites, services, products or pricing policies
introduced by our competitors may require us to introduce new
offerings or reduce the prices we charge our customers for
Internet access;
- our capital expenditures and other costs relating to the
expansion of our operations could affect the completion of our
network or could require us to generate additional revenue in
order to be profitable;
- the timing and nature of any agreements we enter into with
strategic partners will determine the amount of revenues
generated by our corporate network and technology services
division;
- the timing and nature of our marketing efforts could affect the
number of our subscribers and the level of electronic commerce
activity on our websites;
- our ability to successfully integrate operations and
technologies from any acquisitions, joint ventures or other
business combinations or investments, including our joint
ventures with ICICI Bank, Citibank, Bank of Madura and RPG
Netcom and our acquisition of IndiaWorld Communications
and Indiaplaza.com and our investment in CricInfo;
- the introduction of alternative technologies may require us to
reevaluate our business strategy and/or to adapt our products
and services to be compatible with such technologies; and
- technical difficulties or system failures affecting the
telecommunication infrastructure in India, the Internet
generally or the operation of our websites.
We plan to increase our expenditures for our sales and marketing
operations, expand and develop content and enhance our technology and
infrastructure development. Many of our expenses are relatively fixed in the
short-term. We cannot assure you that our revenues will increase in proportion
to the increase in our expenses. We may be unable to adjust spending quickly
enough to offset any unexpected revenues shortfall. This could lead to a
shortfall in revenues in relation to our expenses.
You should not rely on yearly comparisons of our results of operations
as indicators of future performance. It is possible that in some future periods
our operating results may be below the expectations of public market analysts
and investors. In this event, the price of our ADSs may underperform or fall.
Because we lack full redundancy for our computer systems, a systems
failure could prevent us from operating our business.
We rely on the Internet and, accordingly, depend upon the continuous,
reliable and secure operation of Internet servers, related hardware and software
and network infrastructure such as lines leased from service providers operated
by the Government of India. We have a back-up data facility but we do not have
full redundancy for all of our computer and telecommunications facilities. As a
result, failure of key primary or back-up systems to operate properly could lead
to a loss of customers, damage to our reputation and violations of our Internet
service
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provider license and contracts with corporate customers. These failures could
also lead to a decrease in value of our ADSs, significant negative publicity and
litigation. Recently, several large Internet companies have suffered highly
publicized system failures which resulted in adverse reactions to their stock
prices, significant negative publicity and, in some instances, litigation.
We have suffered service outages from time to time. We guarantee to our
corporate customers that our network will be operational 99% of the time, and
our Internet service provider license requires that we provide an acceptable
level of service quality and that we remedy customer complaints within a
specified time period. Our computer and communications hardware are protected
through physical and software safeguards. However, they are still vulnerable to
fire, storm, flood, power loss, telecommunications failures, physical or
software break-ins and similar events. We do not carry business interruption
insurance to protect us in the event of a catastrophe even though such an event
could lead to a significant negative impact on our business. Any sustained
disruption in Internet access provided by third parties could also have a
adverse material effect on our business.
Security breaches could damage our reputation or result in liability to
us.
Our facilities and infrastructure must remain secure and be perceived by
consumers to be secure, because we retain confidential customer information in
our database. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses,
programming errors or similar disruptive problems. If a person circumvents our
security measures, he or she could jeopardize the security of confidential
information stored on our systems, misappropriate proprietary information or
cause interruptions in our operations. We may be required to make significant
additional investments and efforts to protect against or remedy security
breaches. A material security breach could damage our reputation or result in
liability to us, and we do not carry insurance that protects us from this kind
of loss.
The security services that we offer in connection with our business
customers' networks cannot assure complete protection from computer viruses,
break-ins and other disruptive problems. Although we attempt to limit
contractually our liability in such instances, the occurrence of these problems
could result in claims against us or liability on our part. These claims,
regardless of their ultimate outcome, could result in costly litigation and
could damage our reputation and hinder ability to attract and retain customers
for our service offerings.
If we are unable to manage the rapid growth required by our business
strategy, our results of operations will be adversely affected.
We have experienced and are currently experiencing a period of
significant growth. As of December 31, 2000, we had 1,160 employees, an increase
of 116.8% from the 535 employees we had as of December 31, 1999. This growth has
placed, and the future growth we anticipate in our operations will continue to
place, a significant strain on our managerial, operational, financial and
information systems resources. As part of this growth, we will have to implement
new operational and financial systems and procedures and controls, expand our
office facilities, train and manage our employee base, and maintain close
coordination among our technical, accounting, finance, marketing, sales and
editorial staffs. If we are unable to manage our growth effectively, we will be
unable to implement our growth strategy, upon which the success of our business
depends.
We face a competitive labor market in India for skilled personnel and
therefore are highly dependent on our existing key personnel and on our
ability to hire additional skilled employees.
Our success depends upon the continued service of our key personnel,
particularly Mr. Ramaraj, our Chief Executive Officer, Mr. Zacharias, our
President and Chief Operating Officer, Mr. Santhanakrishnan, our Chief Financial
Officer, and each of our vice presidents. Substantially all of our employees are
located in India, and each of them may voluntarily terminate his or her
employment with us. We do not carry key person life insurance on any of our
personnel. Our success also depends on our ability to attract and retain
additional highly qualified technical, marketing and sales personnel. The labor
market for skilled employees in India is extremely competitive, and the process
of hiring employees with the necessary skills is time consuming and requires the
diversion of significant resources. While we have not experienced difficulty in
employee retention or integration to date, we may not be able to continue to
retain or integrate existing personnel or identify and hire additional personnel
in the future. The loss of the services of key personnel, especially the
unexpected death or disability of such personnel, or the inability
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to attract additional qualified personnel, could disrupt the implementation of
our growth strategy, upon which the success of our business depends.
We are highly dependent on our relationships with strategic partners to
provide key products and services to our customers.
We rely on our arrangements with strategic partners to provide key
network and electronic commerce products and services to our business clients.
Our relationships with UUNet Technologies, Open Market and Sterling Commerce, a
unit of SBC Communications, are exclusive to us within the Indian market with
regard to specific products, so long as we maintain stated minimum performance
levels. If we were to lose exclusivity, we would likely be subject to intense
competition for these products and services. These arrangements can be
terminated by our partners in some circumstances. We also rely on our strategic
partners to provide us with access to their customer base. If our relationships
with our strategic partners do not continue, the ability of our corporate
network and technology services division to generate revenues will be decreased
significantly. We also provide access to a co-branded version of the AOL Instant
Messenger service to our portal customers and this proprietary service is an
important feature of our website.
We and our subsidiary IndiaWorld Communications are engaged in disputes
which, if resolved unfavorably, could impose costs on us or have other
undesirable effects.
We and IndiaWorld Communications are involved in litigation with a party
located in the United States which has alleged, among other things, that the
activities of IndiaWorld Communications infringe a United States trademark for
the term "IndiaWorld," and associated logos and trade dress purportedly owned by
this third party and that the third party has an ownership interest in the
underlying technology and business. We have been advised by the prior owners of
IndiaWorld Communications that no such infringement or misappropriation has
taken place. This matter is currently pending in federal court in San Diego,
California. Our contract with the prior owners of IndiaWorld Communications
includes an indemnity for past infringement or misappropriation. We and
IndiaWorld Communications have also been contacted by a party who alleges, among
other things, that he is entitled to an equity ownership in IndiaWorld
Communications. We believe that this claim is also covered by the contractual
indemnity provided by the prior owners of IndiaWorld Communications.
Nonetheless, any dispute such as those described above creates uncertainty as to
the possible outcome, including whether or not our indemnity will be effective
in protecting us, and also could divert management time and attention away from
our business.
We face risks associated with our joint ventures with ICICI Bank,
Citibank, Bank of Madura and RPG Netcom, our acquisition of IndiaWorld
Communications and Indiaplaza.com, our investment in CricInfo Limited
and with other potential acquisitions, investments, strategic
partnerships or other ventures, including whether any such transactions
can be located, completed and the other party integrated with our
business on favorable terms.
In November 1999, we acquired 24.5% of the outstanding shares of
IndiaWorld Communications, together with an option to acquire IndiaWorld
Communications' remaining outstanding shares which we exercised in June 2000. In
November and December 1999, we also formed alliances with ICICI Bank, Citibank,
Bank of Madura and RPG Netcom. In May 2000, we entered into a partnership with
VeriSign to provide managed digital certificate-based authentication services in
India. In June 2000, we entered into an agreement with America Online to
distribute a co-branded version of the AOL Instant Messenger. In July 2000, we
completed our investment in CricInfo Limited and agreed to acquire
Indiaplaza.com. In September 2000, we made an investment in Eduempire.com. In
December 2000, we completed our acquisition of Indiaplaza.com. These
transactions were only recently entered into and most of them are not yet
operational. We may acquire or make investments in other complementary
businesses, technologies, services or products, or enter into additional
strategic partnerships with parties who can provide access to those assets, if
appropriate opportunities arise in the future. From time to time we have had
discussions and negotiations with a number of companies regarding our acquiring,
investing in or partnering with their businesses, products, services or
technologies, and we regularly engage in such discussions and negotiations in
the ordinary course of our business. Some of those discussions also contemplate
the other party making an investment in our company. We may not identify
suitable acquisition, investment or strategic partnership candidates in the
future, or if we do identify suitable candidates, we may not complete those
transactions on commercially acceptable terms or at all. We may experience
difficulty in integrating the services of ICICI Bank,
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Citibank, Bank of Madura, RPG Netcom, VeriSign, CricInfo and AOL Instant
Messenger with our services, and these alliances may not provide all or a
portion of the anticipated benefits. We could have difficulty in assimilating
IndiaWorld Communications' or Indiaplaza's personnel, operations, technology and
software, or that of another company we acquire, with our company. In addition,
the key personnel of an acquired company may decide not to work for us. If we
make other types of acquisitions, we could have difficulty in integrating the
acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses which could adversely affect our operating
results and cause the price of our ADSs to decline. Furthermore, we may incur
indebtedness or issue additional equity securities to pay for any future
acquisitions. The issuance of additional equity securities would dilute the
ownership interests of the holders of our ADSs.
Our financial results are impacted by the financial results of entities
that we do not control.
We have a significant, non-controlling minority investment in Cricinfo,
that is accounted for under the United States Generally Accepted Accounting
Principles using the equity method of accounting. Under this method, we are
obligated to report as "Equity in losses (gains) of affiliates" a pro rata
portion of the financial results of any such company in our statement of
operations even though we do not control the other company. Thus, our reported
results of operations can be significantly increased or decreased depending on
the results of Cricinfo or other companies in which we may make similar
investments even though we may have only a limited, if any, ability to influence
these activities.
Satyam Computer Services controls our company and may have interests
which conflict with those of our other stockholders or holders of our
ADSs.
As of the date of this report, Satyam Computer Services beneficially
owned approximately 52.5% of our equity shares. As a result, it is able to
exercise control over many matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. Under Indian law, a simple majority is sufficient to control all
stockholder action except for those items which require approval by a special
resolution. If a special resolution is required, the number of votes cast in
favor of the resolution must not be less than three times the number of votes
cast against it. Examples of actions that require a special resolution include:
- altering our Articles of Association;
- issuing additional shares of capital stock, except for pro rata
issuances to existing stockholders;
- commencing any new line of business; and
- commencing a liquidation.
Circumstances may arise in which the interests of Satyam Computer
Services could conflict with the interests of our other stockholders or holders
of our ADSs. Satyam Computer Services could delay or prevent a change of control
of our company even if a transaction of that sort would be beneficial to our
other stockholders, including the holders of our ADSs. In addition, we have an
agreement with South Asia Regional Fund, an investor in our company, which
assures them a board seat and provides specified additional rights to them.
We must make substantial capital expenditures in new network
infrastructure which, if not offset by additional revenue, will
adversely affect our operating results.
We must continue to expand and adapt our network infrastructure as the
number of users and the amount of information they wish to transfer increases
and as the requirements of our customers change. The expansion of our Internet
network infrastructure will require substantial financial, operational and
management resources. The development of private Internet access and other data
networks in India is a new business for private market entrants such as our
company and we may encounter cost overruns, technical difficulties or other
project delays in connection with any or all of the new facilities. We can give
no assurance that we will be able to expand or adapt our network infrastructure
to meet the additional demand or our customers' changing requirements on a
timely basis, or at a commercially reasonable cost, or at all. A portion of our
capital expenditures for network development are fixed, and the success of our
business depends on our ability to grow our business to utilize this capacity.
In addition, if demand for usage of our network were to increase faster than
projected, our network could experience capacity constraints, which would
adversely affect the performance of the system.
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The laws of India do not protect intellectual property rights to the
same extent as those of the United States, and we may be unsuccessful in
protecting our intellectual property rights.
Our intellectual property rights are important to our business. We rely
on a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our intellectual property.
Our efforts to protect our intellectual property may not be adequate.
Our competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of
India do not protect proprietary rights to the same extent as laws in the United
States, and the global nature of the Internet makes it difficult to control the
ultimate destination of our products and services. For example, Indian statutory
law does not protect service marks. The misappropriation or duplication of our
intellectual property could disrupt our ongoing business, distract our
management and employees, reduce our revenues and increase our expenses. In the
future, litigation may be necessary to enforce our intellectual property rights
or to determine the validity and scope of the proprietary rights of others. Any
such litigation could be time-consuming and costly.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the content and functionality of our
websites or other product or service offerings overlap with competitive
offerings. Defending against these claims, even if not meritorious, could be
expensive and divert our attention from operating our company. If we become
liable to third parties for infringing their intellectual property rights, we
could be required to pay a substantial damage award and forced to develop
non-infringing technology, obtain a license or cease selling the applications
that contain the infringing technology. We may be unable to develop
non-infringing technology or obtain a license on commercially reasonable terms,
or at all.
Our platform infrastructure and its scalability are not proven, and our
current systems may not accommodate increased use while maintaining
acceptable overall performance.
Currently, only a relatively limited number of consumers use our
Internet service provider services and Internet portal. We must continue to
expand and adapt our network infrastructure to accommodate additional users,
increasing transaction volumes and changing customer requirements. We may not be
able to project accurately the rate or timing of increases, if any, in the use
of our websites or expand and upgrade our systems and infrastructure to
accommodate such increases. Our systems may not accommodate increased use while
maintaining acceptable overall performance. Service lapses could cause our users
to use the online services of our competitors.
We do not plan to pay dividends in the foreseeable future.
We do not anticipate paying cash dividends to the holders of our ADSs in
the foreseeable future. Accordingly, investors must rely on sales of their ADSs
after price appreciation, which may never occur, as the only way to realize on
their investment. Investors seeking cash dividends should not purchase our ADSs.
RISKS RELATED TO THE INTERNET
We may be liable to third parties for information retrieved from the
Internet.
Because users of our Internet service provider service and visitors to
our websites may distribute our content to others, third parties may sue us for
defamation, negligence, copyright or trademark infringement, personal injury or
other matters. We could also become liable if confidential information is
disclosed inappropriately. These types of claims have been brought, sometimes
successfully, against online services in the United States and Europe. Others
could also sue us for the content and services that are accessible from our
websites through links to other websites or through content and materials that
may be posted by our users in chat rooms or bulletin boards. We do not carry
insurance to protect us against these types of claims, and there is no precedent
on Internet service provider liability under Indian law. Further, our business
is based on establishing the satyamonline.com network as a trustworthy and
dependable provider of information and services. Allegations of impropriety,
even if unfounded, could damage our reputation, disrupt our ongoing business,
distract our management and employees, reduce our revenues and increase our
expenses.
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The success of our strategy depends on our ability to keep pace with
technological changes.
Our future success depends, in part, upon our ability to use leading
technologies effectively, to continue to develop our technical expertise, to
enhance our existing services and to develop new services that meet changing
customer requirements. The market for our service is characterized by rapidly
changing technology, evolving industry standards, emerging competition and
frequent new service introductions. We may not successfully identify new
opportunities and develop and bring new services to market in a timely manner.
Our business may not be compatible with delivery methods of Internet
access services developed in the future.
We face the risk that fundamental changes may occur in the delivery of
Internet access services. Currently Internet services are accessed primarily by
personal computers and are delivered by modems using telephone lines. As the
Internet becomes accessible by cellular telephones, personal data assistants,
television set-top boxes and other consumer electronic devices, and becomes
deliverable through other means involving digital subscriber lines, coaxial
cable or wireless transmission mediums, we will have to develop new technology
or modify our existing technology to accommodate these developments. Our pursuit
of these technological advances, whether directly through internal development
or by third party license, may require substantial time and expense. We may be
unable to adapt our Internet service business to alternate delivery means and
new technologies may not be available to us at all.
Our product and service offerings may not be compatible with industry
standards developed in the future.
Our ability to compete successfully depends upon the continued
compatibility and interoperability of our services with products and
architectures offered by various vendors. Although we intend to support emerging
standards in the market for Internet access, industry standards may not be
established and, if they become established, we may not be able to conform to
these new standards in a timely fashion or maintain a competitive position in
the market. The announcement or introduction of new products or services by us
or our competitors and any change in industry standards could cause customers to
deter or cancel purchases of existing products or services.
RISK RELATED TO THE ADSS AND OUR TRADING MARKET
Holders of ADSs are restricted in their ability to exercise preemptive
rights under Indian law and thereby may suffer future dilution of their
ownership position.
Under the Companies Act, 1956 of India, or Companies Act, a company
incorporated in India must offer its holders of equity shares preemptive rights
to subscribe and pay for a proportionate number of shares to maintain their
existing ownership percentages prior to the issuance of any new equity shares,
unless the preemptive rights have been waived by adopting a special resolution
by holders of three-fourths of the company's shares which are voted on the
resolution. At our 2000 Annual General Meeting, our stockholders approved a
special resolution pursuant to which we may issue up to one million equity
shares in connection with acquisitions, including our acquisitions of IndiaWorld
Communications and Indiaplaza.com and our investment in CricInfo Limited. As a
result, ADS holders are deemed to have waived their preemptive rights with
respect to these shares, virtually all of which have now been issued in
investment and acquisition transactions. In addition, U.S. holders of ADSs may
be unable to exercise preemptive rights for equity shares underlying ADSs unless
approval of the Ministry of Finance of the Government of India is obtained and a
registration statement under the Securities Act of 1933, as amended, is
effective with respect to the rights or an exemption from the registration
requirements of the Securities Act is available. Our decision to file a
registration statement will depend on the costs and potential liabilities
associated with any given registration statement as well as the perceived
benefits of enabling the holders of our ADSs to exercise their preemptive rights
and any other factors that we deem appropriate to consider at the time the
decision must be made. We may elect not to file a registration statement related
to preemptive rights otherwise available by law to our stockholders. In the case
of future issuances, the new securities may be issued to our depositary, which
may sell the securities for the benefit of the holders of the ADSs. The value,
if any, our depositary would receive upon the sale of such securities cannot be
predicted. To the extent that holders of ADSs are unable to exercise preemptive
rights granted in respect of the equity shares represented by their ADSs, their
proportional interests in our company would be reduced.
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Holders of ADSs may be restricted in their ability to exercise voting
rights.
As a holder of ADSs, you generally have the right under the deposit
agreement to instruct the depositary bank to exercise the voting rights for the
equity shares represented by your ADSs.
At our request, the depositary bank will mail to you any notice of
stockholders' meeting received from us together with information explaining how
to instruct the depositary bank to exercise the voting rights of the securities
represented by ADSs. If the depositary bank timely receives voting instructions
from a holder of ADSs, it will endeavor to vote the securities represented by
the holder's ADSs in accordance with such voting instructions. However, the
ability of the depositary bank to carry out voting instructions may be limited
by practical and legal limitations and the terms of the securities on deposit.
We cannot assure you that you will receive voting materials in time to enable
you to return voting instructions to the depositary bank in a timely manner.
Securities for which no voting instructions have been received will not be voted
on a poll.
The market price of our ADSs has been and may continue to be highly
volatile.
The market price of our ADSs has fluctuated widely and may continue to
do so. For example, since our initial public offering in October 1999 through
January 31, 2001 and, after giving effect to the 4-for-1 split of our ADSs in
January 2000, the trading price of our ADSs has ranged from a high of $113 per
ADS to a low of $2.97 per ADS. Many factors could cause the market price of
our ADSs to rise and fall. Some of these factors include:
- our failure to integrate successfully our operations with those
of IndiaWorld Communications or Indiaplaza;
- actual or anticipated variations in our quarterly operating
results;
- announcement of technological innovations;
- conditions or trends in the Internet and electronic commerce
industries;
- the competitive and pricing environment for consumer Internet
access services in India and the related cost and availability
of bandwidth;
- the perceived attractiveness of investment in Indian companies;
- acquisitions and alliances by us or others in the industry;
- changes in estimates of our performance or recommendations by
financial analysts;
- market conditions in the industry and the economy as a whole;
- introduction of new services by us or our competitors;
- changes in the market valuations of other Internet service
companies;
- announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- additions or departures of key personnel; and
- other events or factors, many of which are beyond our control.
The financial markets in the United States and other countries have
experienced significant price and volume fluctuations, and the market prices of
technology companies, particularly Internet-related companies, have been and
continue to be extremely volatile. Volatility in the price of our ADSs may be
caused by factors outside of our control and may be unrelated or
disproportionate to our operating results. In the past, following periods of
volatility in the market price of a public company's securities, securities
class action litigation has often been instituted against that company. Such
litigation could result in substantial costs and a diversion of our management's
attention and resources.
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An active or liquid market for the ADSs is not assured, particularly in
light of Indian legal restrictions on equity share conversion and
foreign ownership of an Internet service provider.
We cannot predict the extent to which an active, liquid public trading
market for our ADSs will exist. Active, liquid trading markets generally result
in lower price volatility and more efficient execution of buy and sell orders
for investors. Liquidity of a securities market is often a function of the
volume of the underlying shares that are publicly held by unrelated parties.
Although ADS holders are entitled to withdraw the equity shares underlying the
ADSs from the depositary at any time, there is no public market for our equity
shares in India or the United States. Under current Indian law, equity shares
may not be re-deposited into our depositary without prior approval of the
Government of India. Therefore, the number of outstanding ADSs will decrease to
the extent that equity shares are withdrawn from our depositary, which may
adversely affect the market price and the liquidity of the market for the ADSs.
Furthermore, foreign ownership in our company, which includes all ADSs, is
limited to 49% under present Indian law. This limitation means that, unless
Indian law changes, 51% of our equity shares will never be available to trade in
the United States market.
The future sales of securities by our company or existing stockholders
may hurt the price of our ADSs.
The market price of our ADSs could decline as a result of sales of a
large number of equity shares or ADSs or the perception that such sales could
occur. Such sales also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate. We
intend to issue additional equity shares and ADSs to fund acquisitions and
investments, and the parties to any such future transactions could also decide
to sell them.
Forward-looking statements contained in this report may not be realized.
This report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of the risks faced by us
described above and elsewhere in this report. We do not intend to update any of
the forward-looking statements after the date of this report to conform such
statements to actual results.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We and IndiaWorld Communications are involved in litigation with a party
located in the United States which has alleged, among other things, that the
activities of IndiaWorld Communications infringe a United States trademark for
the term "IndiaWorld," and associated logos and trade dress purportedly owned by
this third party and that the third party has an ownership interest in the
underlying technology and business. We have been advised by the prior owners of
IndiaWorld Communications that no such infringement or misappropriation has
taken place. This matter is currently pending in federal court in San Diego,
California. Our contract with the prior owners of IndiaWorld Communications
includes an indemnity for past infringement or misappropriation. We and
IndiaWorld Communications have also been contacted by a party who alleges, among
other things, that he is entitled to an equity ownership in IndiaWorld
Communications. We believe that this claim is also covered by the contractual
indemnity provided by the prior owners of IndiaWorld Communications.
Nonetheless, any dispute such as those described above creates uncertainty as to
the possible outcome, including whether or not our indemnity will be effective
in protecting us, and also could divert management time and attention away from
our business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 15, 2000, we completed our acquisition of Indiaplaza.com
through the issuance of an aggregate of 480,000 ADSs (representing 120,000
equity shares). The issuance is exempt from registration under Section 3(a)(10)
of the Securities Act of 1933 pursuant to a transactional approval granted by
the California Commissioner of Corporations.
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ITEM 6. EXHIBITS AND REPORTS
(a) Our report on Form 6-K which we filed with the SEC on October
10, 2000; and
(b) Our report on Form 6-K which we filed with the SEC on November
14, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunder duly organized.
Date: February 20, 2001
SATYAM INFOWAY LIMITED
By: /s/ T.R. Santhanakrishnan
---------------------------------
Name: T.R. Santhanakrishnan
Title: Chief Financial Officer
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