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Rediff.com  » Business » IT firms to report better dollar numbers in Q3

IT firms to report better dollar numbers in Q3

By BS Reporter
January 08, 2010 10:32 IST
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Information TechnologyWith the rupee appreciating by nearly 4 per cent against the dollar, Indian information technology service providers are expected to see flat to negative revenue figures in rupee terms for the third quarter (October-December 2009).

However, volume-led growth and positive cross-currency movements are expected to prop up the dollar revenues of these top IT companies.

Analysts expect these companies to post a revenue increase of 3.5-5 per cent in dollar terms.

The bottom line for IT companies, however, is expected to be hit, since many companies hired employees in the third quarter, implemented salary hikes, and increased selling, general and administration expenses. The operating margins (Ebitda) of the top three companies may see a sequential decline of 90-180 basis points, say brokerage house analysts.

Earnings growth usually slows in the October-December quarter, as there are fewer billing days because of an increased number of holidays.

"The revenues for frontline IT companies in rupee terms will be almost flat or marginally negative on a quarter-on-quarter basis, expect for Wipro (for which we expect a 1.7 per cent q-o-q growth, due to its hedging policies).

This is mainly because the positive impact of the expected improvement in the utilisation rate and favourable cross-currency movement would be largely offset by the appreciation in the rupee," said ShareKhan analysts.

The cross-currency movement will have a positive effect of 0.4-0.8 per cent, according to analysts Ashwin Mehta and Vihang Naik of Motilal Oswal.

"Infosys is expected to gain the most, on 5.9 per cent revenue contribution from the Australian dollar, which has risen most (9.6 per cent), followed by the Euro at 4 per cent and a flat British pound against the US dollar," they added.

Among the top three players, analysts expect Wipro to throw a better set of numbers than the others.

The company is expected to post the highest sequential growth of 5 per cent, ahead of its guided range of 2.5-4.5 per cent, followed by TCS at 3.9 per cent and Infosys at 3.7 per cent.

With the stability in the US markets and no more cancellations among major large clients, Indian IT service companies have been sounding much more positive.

Though analysts still feel that in terms of IT budgets for calendar year 2010, the growth would be flat, commentary from Infosys (the first one to announce results and to give guidance) will be awaited.

The street expects that Infosys will guide for a 2 per cent sequential growth for the fourth quarter.

"We expect Infosys to revise its dollar-term revenue guidance to 0.0-0.7 per cent growth in 2009-10 compared with minus-1 to minus-1.3 per cent guided earlier.

"We highlight that Infosys would be maintaining its conservative approach in its guidance in terms of demand environment," said ShareKhan Securities.

Among the operational parameters, the shift towards fixed-price project has gained momentum.

"We yet believe that the trend holds good, as it provides Indian IT companies with better margins on an efficiently-executed project," said a Anand Rathi Research report.

On a year-on-year basis, the revenue contribution from fixed price projects have been increasing, In case of TCS, it constitutes over 47 per cent and for Wipro, it is 40 per cent.

Analysts are positive with the growth, despite the fact that discretionary spend would start picking up only during the second half of 2010.

This stems from several initiatives that IT companies have taken in the last year. Sales and marketing initiatives got renewed thrust and there was diversification into emerging markets like Latin America, Europe and Asia, including India. Non-linear growth models were the focus of growth.

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BS Reporter in Mumbai
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