Bangalore: Software services firms such as Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Wipro Ltd will start announcing their results for the December quarter later this week, but analysts say the focus will be more on their business outlook for the coming quarters from the US, where an economic slowdown could potentially shrink technology spending.
Analysts also say they will watch closely the 2008 forecast by Cognizant Technology Solutions Corp., a New Jersey, US-headed tech services firm that carries out most of its development work in India, in February, because that would clearly set the direction for the industry in the year.
Infosys reports its results on Friday, followed by TCS on 16 January, Wipro on 18 January and Satyam Computer Services Ltd on 21 January.
“The quarterly numbers will be more of a non-event and a clearer picture will emerge some time in March-April,” said Gaurav Dua, analyst at brokerage firm Sharekhan Ltd. Some key metrics to look out for would be weakness in future demand, signalled in management commentary, and any signs of sluggishness in hiring, he said.
“If there is any slowdown in employee ramp-up, markets will construe that companies are not confident enough about their outlook and the stocks will take a beating,” Dua said, adding he doesn’t see a slowdown in hiring yet.
According to Harit Shah, an analyst at Angel Commodities Broking Pvt. Ltd, the year-on-year growth of revenues in dollar terms will be between 31% and 40%, but in rupee terms it will be sluggish at 18-30% as the rupee has appreciated by 11% over the corresponding quarter last year. But, on a quarter-on-quarter or sequential basis, the movement of the rupee against the dollar has been relatively stable. The rupee ended at 39.4 against the dollar on 31 December, a 0.8% appreciation over the rate in end-September. Shah expected the operating profit margins of the firms to improve sequentially as the rupee had stabilized in the quarter at a time when billing rates were on an upward trend in the past few quarters.
The rupee appreciated 2% against the British pound, which will not impact larger firms as their billing is predominantly in dollars, but, it could affect smaller firms as Hexaware Ltd and Mastek Ltd which have a higher exposure to European revenues, Dua said.
The only firm that saw an increase in wages in the quarter was Wipro, which implemented a salary hike for employees in its BPO division. Further, employee utilization rates—hovering between 70% and 75%—should add to improved profitability for most firms, Shah said.
A Mint poll of forecast by six brokerages showed Infosys’ average sales revenues for the quarter to December will grow by between 5.2% and 6.7% sequentially, with the average set at Rs4,338.88 crore, higher than the firm’s own estimates. Infosys had forecast its revenues to grow between 3.2% and 3.7% sequentially to Rs4,238-4,258 crore in the quarter. The average net profits in the poll stood at Rs1,176.9 crore. Operating profit margins or earnings before interest, tax, depreciation and amortization as a percentage of sales is expected to improve marginally to 31.58% in the December quarter, up from 31.3% in the three months to September.
Revenues at TCS are expected to grow to an average of Rs5,940.95 crore. The firm’s net profit is expected to grow by 5.17% sequentially and its operating profit margin was expected to be 26.58% (versus 26.4% in the September quarter) on the back of higher sales, lower general and administrative expenses, and better utilization.
Wipro’s revenues are expected to grow to Rs5,223 crore. Wipro Technologies, the firm’s global software service business, is expected to see a double digit sequential revenue growth to Rs3,637.8 crore. Wipro had forecast revenue of $905 million, or Rs3,592 crore, for Wipro Technologies before the quarter. Net profit for the firm in the December quarter is expected to grow to Rs845.31 crore by the analysts polled.
Satyam’s revenue is likely to grow to an average of Rs2,164 crore, the analysts said. The firm had projected a revenue of between $538 million and $540.6 million, a growth of between 5.6% and 6.1%. Net profit is expected to grow between 3.8% and 7.3% to an average of Rs430.51 crore.
Revenue at HCL Technologies Ltd is expected to be Rs1,829.36 crore, a sequential growth of 6.56%. Net profit is expected to be Rs325.28 crore, with operating margins expected at 21.56%, up from 20.2% in the September quarter.
The six brokerages polled were Angel Broking, CLSA Asia Pacific, Sharekhan, Motilal Oswal Securities Ltd, Religare Securities Ltd and Kotak Securities Ltd.