Bangalore: While the Satyam Computer Services Ltd fiasco will cast a shadow on information technology (IT) firms such as Infosys Technologies Ltd, Tata Consultancy Services Ltd (TCS) and Wipro Ltd, which begin reporting third quarter earnings this week, analysts expect deepening recession in the US could reflect in lower numbers for the industry.
Analysts expect most Indian firms to miss their guidance for the quarter and reduce the target for the year ahead as clients in the US delay or cancel contracts due to the economic crisis. Also, October-December forms the weakest quarter for Indian IT firms, due to festive holidays in India—where it employs most of its workers—and in the US and Europe—where it has most of its clients.
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Majority of the revenues for these firms come from the so-called time and material contracts or billed man-hours for services they deliver.
Technology researcher IDC Corp. has forecast global IT spend to reduce by half to 2.6% in 2009 due to the recession spreading to other countries. “Global growth will be cut in half and take three years to come back,” IDC said in a report released on 31 December.
In the same month, Infosys chief executive S. Gopalakrishnan said the growth of Indian IT services industry would reduce by half to 15%, due to the slowdown.
In a 6 January report, Indian analysts at Bank of America Merrill Lynch, predicted volumes declining sequentially or over the previous quarter for the first time in 10 years.
“We forecast a quarter-on-quarter decline in dollar revenues for all majors compounded by weakening of the European currencies,” said analysts Mitali Ghosh and Pratish Krishnan, who expect Infosys and Wipro to disappoint.
The rupee fell 3.9% against the dollar in the quarter. The dollar dropped 0.9% against the Euro and 18% against the pound in the same period.
Infosys will report its quarterly results on 13 January, followed by TCS on 15 January, Wipro on 21 January and HCL Technologies Ltd on 23 January.
Analysts have stopped coverage of Satyam since the disclosure of a Rs7,000 crore fraud on 7 January.
In a 6 January report, Edelweiss Securities Ltd, said it would maintain technology stocks as “underweight” since the Indian firms are often in the downstream of the technology food chain.
“Caution is still warranted for the next 3-6 months and we believe a rerating is sometime away,” analysts Viju George and Kunal Sangoi wrote in the report.
A Mint analysis of forecasts by eight brokerages—Bank of America Merrill Lynch, Credit Suisse, CLSA Asia Pacific Markets, Angel Broking Ltd, Emkay Global Financial Services Ltd, Edelweiss, Citi Investment Research, a unit of Citigroup Global Markets Inc., and Sharekhan Ltd—showed Infosys’ average sales revenue for the December quarter was likely to grow between a flattish -0.5% and 7.6% at Rs5,704 crore. The average net profit projected by analysts is Rs1,521 crore.
In October, Infosys had forecast revenue for the December quarter to be between Rs5,519 crore and Rs5,730 crore.
The same analysis projected TCS to grow between 2.6% and 8.5% to Rs7,374 crore. The firm’s net profit is expected to be Rs1,367 crore. TCS does not give guidance.
Wipro, the third largest IT vendor, is likely to post profit of Rs920 crore on a revenue of Rs6,722 crore, which includes earnings from consumer care and lighting business. In October, Wipro forecast global IT services revenue for the third quarter to be $1,121 million (about Rs5,482 crore today).