Economic Times of India
Indian IT Companies to Report Worst-Ever Results
Top IT exporters could well report the worst ever sequential growth in revenues and profits for the March 2009 quarter. This is on account of pressure on billing rates and a longer time taken by clients to decide on IT spends, say analysts.
According to estimates put out by five research houses and a forecast by ET Intelligence Group, average revenue for the top four IT companies is likely to fall marginally by 0.5% during the quarter ended March 2009 as compared to the previous quarter. Net margins are expected to witness contraction as the fall in profit after tax (PAT) is expected to be steeper at 4%.
The top four companies in the sector are TCS, Infosys, Wipro, and HCL Technologies. Wipro is likely to see the sharpest fall of 9% in its PAT while TCS is the only company in this group which is likely to report a rise in sales and PAT—a modest 0.8% in both cases.
The March quarter would so far be the toughest for IT companies following the rough global economic climate coupled with troubles in user industries like banking and finance, telecom and automobiles. "The growth phase is behind us. What matters now is resilience. We feel that the top three (TCS, Infosys, and Wipro) are well positioned in the current scenario ," said Edelweiss IT analyst Viju George.
JP Morgan, in a recent report, expects large Indian IT players to witness close to a 2% sequential volume decline and a price decline of 3-4 %. "We expect a majority of the pricing pressure to show up in the March quarter along with some volume pressure due to delayed spend decisions," says the report.
Some of the top IT companies have suffered project cancellations during the said quarter. "We expect TCS to have been impacted the most due to project cancellations while Infosys is expected to have remained largely unscathed," says brokerage firm Motilal Oswal in its preview report.
An expectation of lower volumes and higher employee addition for companies like TCS and Infosys is likely to result in lower employee utilisation. Analysts feel that this would adversely affect the operating profitability of companies. Motilal Oswal expects operating margins for Infosys to drop by 70 basis points (bps) while TCS and Wipro are likely to see drops of 200 bps and 140 bps respectively .
On the positive side, the continued weakness in the rupee against the dollar would provide some support to the toplines of IT firms. The rupee has depreciated by nearly 3% on an average during the quarter on sequential basis. "Infosys, with its lowest hedges, will benefit the most while HCL Tech, Wipro, and TCS are likely to see further losses," mention Edelweiss IT analysts Viju George and Kunal Sangoi in their report.
The markets would also keenly follow the FY10 guidance of the companies which is likely to be muted. JP Morgan expects Infosys to provide a flat revenue guidance in constant currency. "This means a drop of about 3% in dollar terms and 3-4 % growth in rupee terms," its report mentions.