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Analysts say Indian IT firms’ growth will slow

Analysts say Indian IT firms’ growth will slow
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First Published: Wed, Apr 09 2008. 11 46 PM IST

Updated: Wed, Apr 09 2008. 11 46 PM IST
Bangalore: Indian software firms, including Infosys Technologies Ltd, Wipro Ltd and Tata Consultancy Services Ltd (TCS), will forecast lower revenue growth for 2008-09 following uncertainty over technology spends in the US, according to a Mint poll of 10 brokerages.
Indian software vendors get around 60% of their revenues from clients in the US, and they may spend less on technology in 2008 because of a recession in that country. According to the poll, Infosys, India’s second largest information technology (IT) firm, is expected to forecast revenue growth of 18-21% for the year to March 2009. Infosys will report its results on 15 April. The same day, its smaller rival HCL Technologies will report its third quarter results, followed by Wipro on 18 April and TCS and Satyam Computer Services Ltd on 21 April. The Hyderabad-based Satyam is expected to forecast revenue growth of 23-26% for 2008-09.
Infosys and Satyam are the only two large listed IT firms in India that issue guidance for the entire year.
“Management commentary on the outlook will be keenly watched,” said Anurag Purohit, an equity analyst who tracks the technology sector at Religare Securities Ltd, a Mumbai brokerage. Still, “the downside of this would be limited as the market has already factored in the negative sentiments,” said Harit Shah, analyst at Angel Broking Ltd.
Top-tier IT stocks—Infosys, Satyam and TCS, which collectively account for 77% of the Bombay Stock Exchange’s IT index weightage—have lost 19%, 12% and 25%, respectively, in the three months to March.
Most analysts expect clarity on the year ahead to come from the guidance of Infosys. Thus far, signals have been mixed. Cognizant Technology Solutions Corp., a US-based IT company that carries out most of its operations from India, has forecast 38% revenue growth in 2008. IT consulting firm Accenture Ltd, which has a large base in India, has also forecast stronger growth, while Oracle Corp,, which makes business software, said sales have been weak and has projected slower growth for the year ahead.
Besides revenue forecast, a key thing to watch out for would be details provided by firms on how many people they expect to hire in the course of the next 12 months, said Shah. If most large companies say they expect to hire more in the coming months, then it means they remain confident about business growing in the year ahead.
However, that might not be the case if the quarter ended March is any indication. Rather than hiring aggressively, most Indian IT firms concentrated on increasing their utilization rates in this quarter.
While analysts remain concerned about the year ahead, one of them said 2008-09 will be better than 2001-02. “The impact of the current recession would be milder on the Indian IT sector than that witnessed in 2001,” Purohit said. This is mainly because companies have shifted their revenue mix towards non-ADM (application development and maintenance) work and have increased their exposure to non-US markets such as Europe and the Asia-Pacific region.
For the March quarter, the companies are expected to post an average growth of 3-7% quarter-on-quarter in terms of revenues. They are also expected to improve their operating margins on the back of higher utilization and lower sales and general administrative, or SGA, expenses. The marginal depreciation of the rupee during the quarter is also expected to help their growth—between January 1 and March 31, the rupee depreciated to 1.2% against the dollar.
According to the Mint poll, Infosys’ revenue for the quarter will grow by between 5.4% and 9.8% quarter on quarter with the average set at Rs4,558.3 crore, higher than the company’s own estimate of between Rs4,477 crore and Rs4,501 crore.
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First Published: Wed, Apr 09 2008. 11 46 PM IST
More Topics: Software Firms | Infosys | Wipro | TCS | Revenue |