Mumbai/Bangalore: Fiscal first quarter financial results for India’s largest software services companies are expected to exceed their projections, reflecting a windfall from a rupee that has been weakening against the dollar and the euro.
Analysts Mint spoke with said they are, then, also likely to raise their share price targets for the five largest information technology (IT) companies—Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd, Wipro Ltd, HCL Technologies Ltd, and Satyam Computer Services Ltd.
(WINDFALL FROM WEAK RUPEE) The rupee depreciated by 7.3% against the dollar between 31 March and 30 June and weakened by 6.5% against the euro. A higher dollar boosts the rupee equivalent of revenue earned by software companies, which pay most of their expenses in the local currency and bill their overseas clients mainly in the US unit.
“The change in currency value will definitely be helpful as dollar-denominated revenues will get boosted,” said Amar Chintopanth, chief financial officer of 3i Infotech Ltd, a publicly traded mid-size information technology company.
A Mint poll of six brokerages showed that market leader TCS will post 6.2% revenue growth at Rs6,474.2 crore in the April-June quarter from the preceding three months, while net profit was expected to be little changed at Rs1,260.5 crore. TCS will announce its results on 16 July.
Infosys, India’s second largest software exporter, is expected to post revenue growth of 7.5% at Rs 4,882.2 crore, while profit may rise 2.25% to Rs1,273.5 crore. Infosys had forecast its June quarter revenue to grow 0.6-0.9% to between Rs4,570 crore and Rs4,582 crore.
Infosys, the bellwether of the IT industry, will be the first among the big five technology companies to announce results for the April-June period, on 11 July.
“Companies will see expansion in their operating margins due to weak rupee, despite wage hikes and visa costs”, says Harit Shah, an analyst at Angel Broking Ltd. He added that Infosys and Satyam are likely to revise upwards their earning guidance for the fiscal year.
Wipro’s consolidated revenue, including that from non-IT businesses, is expected to grow 5.25% to Rs5,970.33 crore while profit is expected to expand 3.2% to Rs905.2 crore. The company had projected its IT revenues at $1.06 billion.
Satyam’s revenue is expected to grow 9.9% to Rs2,657.41 crore, much ahead of its own estimates, and profit to Rs511.53 crore. Satyam had forecast its revenue to be between Rs2,500 crore and Rs2,512.5 crore.
Shares of these companies, which have outperformed the Bombay Stock Exchange’s plunging benchmark index, the Sensex, since 30 March, could extend their rally over the next few weeks, analysts say. “There will be upward revision in earnings estimates (for the full year),” said Rishi Maheshwari, an analyst at brokerage Centrum Capital Ltd.
Shares of Infosys, which saw a 26% run-up in price since 30 March against a 13.5% slump in the Sensex, could get a renewed boost. “Infosys is expected to bring out strong numbers on Friday,” said Shahina Mukadam, head of equity research at IDBI Capital Market Services Ltd.
A mid-April Mint analysis of share price targets set by analysts from a dozen domestic and foreign brokerages had indicated a wide range of forecasts for Infosys, ranging from a low of Rs1,341 by domestic brokerage India Infoline Ltd to a high of Rs2,160, set by Ajay Mathrani of Deutsche Bank. The share closed trading on Tuesday at Rs1,736, down 3.62%.
Losses that may be booked by software firms from currency hedging are still of some concern, analysts said. Most technology companies have hedged against the risk of the rupee extending its gains from last year. The rupee’s gains against the dollar in 2007 dented the earnings of software makers.
The gains from the strengthening of the dollar could be offset by hedges taken at Rs40 or so, said Anil Advani, head of equity research at SBI Capital Markets Ltd. Infosys has the lowest currency hedges —about $700 million—among the five large IT companies, according to analysts. Wipro has the highest, at about $3.5 billion, they said.
Satyam shares have gained 22% since 30 March, while TCS stock has risen 5%. Wipro gained 3.5% while HCL shed 3.6% during this period.