A strong rupee will hit the growth in revenues of software services companies by almost 300-400 basis points (3-4 per cent) for the quarter ended December 2006.
The rupee was pegged at 45.30-45.60 to a dollar in the software companies' guidance for the third quarter. However, the rupee averaged at 44.36 during the same period.
Most IT analysts agree that frontline as well as mid-size software services companies are unlikely to repeat their second quarter performance.
For instance, CLSA estimates the IT services companies to post a revenue growth of 6.8 per cent quarter on quarter and 41 per cent year on year for the December 2006 quarter.
Analysts at Motilal Oswal Research predict a quarter-on-quarter revenue growth of 7.3 per cent and 41.7 per cent y-o-y. The quarter-on-quarter profit is expected to increase by 6.6 per cent, with the year- on-year profit growth at 44.30 per cent.
IT analysts at Sharekhan Research too expect the performance of frontline companies to be affected by the dual impact of a fewer number of working days and a steep appreciation of the rupee.
They estimate an average revenue growth in the range of 5 to 8 per cent on a sequential basis for the period. The profit growth is expected to be in range of 1 to 6.5 per cent.
Frontline and mid-size software companies had done well during the quarter ended September 2006 with a revenue growth of over 11 per cent quarter on quarter and 50 per cent year on year.
The profit growth was also encouraging at 22 per cent quarter on quarter and 54.6 per cent year on year.
However, a major issue faced by software firms is wage inflation, which has become the core differentiator, as both onsite and offshore wage hikes moved to a higher range for several vendors.
Looking at the top-four IT majors, Infosys Technologies' outlook for the December quarter was based on an exchange rate of Rs 45.60 a dollar.
The company expected a year-on-year revenue growth of 42.3-43.2 per cent & q-o-q growth of 4.4-5 per cent. Earnings per share is expected to be around Rs 16.84, y-o-y growth of 42.2 per cent.
Analysts expect Infosys' revenue to grow at 7 per cent quarter on quarter and over 46 per cent year on year. The q-o-q earnings are expected to grow between 4.8 and 7 per cent per cent, while the y-o-y earnings are pegged at around 50 per cent.
According to a survey done by the company among its clients, the IT spending would be flat with an upside of about 3-4 per cent. Wipro expected a 7.5 per cent growth in income from global IT business in the December 2006 quarter.
Analysts expect Wipro's global revenues to increase by 7.4-8 per cent q-o-q and 37.7 per cent y-o-y. The profit is expected to be up by 2.3-3.5 per cent q-o-q and around 29 per cent y-o-y.
TCS had reiterated its aim at maintaining the operating margins at the FY06 levels. The main drivers for margin expansion will be a better onsite and offshore mix and maintaining SG&A at 20.5-21 per cent of the revenues.
TCS q-o-q revenues are expected to grow by around 6.5 per cent and by 38 per cent year on year. The earnings growth is expected to be around 8.5 per cent q-o-q and 44 per cent y-o-y.
Satyam Computer expects its income from services to increase at the rate of 4-4.5 per cent, while the profit is expected to grow by 5.10 per cent.
Analysts expect Satyam to post a revenue growth of 6.1-6.7 per cent q-o-q and 34 per cent y-o-y. The company's profit is expected to grow by 6.1-8.2 per cent q-o-q and around 28 per cent y-o-y.
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