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Re, US woes take toll on Wipro, TCS

Re, US woes take toll on Wipro, TCS
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First Published: Thu, Oct 23 2008. 12 16 AM IST

Updated: Thu, Oct 23 2008. 12 16 AM IST
Bangalore / Mumbai: Information technology (IT) stocks led the fall in Indian bourses on Wednesday, even as announcements by Tata Consultancy Services Ltd (TCS) and Wipro Ltd of their results for the quarter ended September, the second of fiscal 2008-09 for both companies, highlighted the negative impact of a falling rupee and a recession in the US, the main market for Indian IT services firms.
TCS’ net profit for the quarter rose 1.5% to Rs1,271 crore as compared with the corresponding quarter of 2007-08 while Wipro saw a 19% growth in profit to Rs978 crore. TCS, the largest Indian IT services firm, lost Rs261 crore to currency fluctuations in the quarter which saw the Indian currency fall 8.5% against the dollar, but Wipro gained Rs5.8 crore from foreign exchange fluctuations. Wipro, however, has around $2 billion of foreign exchange hedges on its books and, if the rupee continues to stay at its current level against the dollar, losses from some of these could show up in the company’s financial statements.
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Both companies acknowledged the impact of the global credit crisis on their business, but struck different notes. “We have a robust pipeline even in the current environment and our diversified market presence and full services will drive growth in the future,” said N. Chandrasekaran, chief operating officer of TCS, in a statement. “Our outlook is cautious in the near term given the extent of strain on the global economy,” said Azim Premji, chairman of Wipro in a statement.
The Bombay Stock Exchange’s IT index lost 4.01%.
The results reinforce the trend set by those of three other IT services companies, Infosys Technologies Ltd, Satyam Computer Services Ltd, and HCL Technologies Ltd—slowing growth in the face of a tough economic environment especially in the US, which accounts for between 30% and 35% of the revenue of these companies, the Indian IT industry’s Big Five. Technology researcher Gartner Inc. last week reduced its forecast for growth of global IT spending in 2009, to 2.3% from 5.8%. Nasscom, the lobby group of the software and back office industry in India, has revised its estimate of growth from 29% to 21-24% and a further revision might be in the works, according to a person familiar with the situation who did not want to be named because he is not authorized to speak on behalf of the group.
TCS and Wipro
TCS ended the quarter with revenue of Rs6,953 crore, a 25.3% increase over the corresponding quarter of 2007-08. Wipro grew its revenue 38% to Rs5,752 crore.
“It is not a good set of numbers (from TCS); it is poor performance,” said Harit Shah, an equity analyst at Angel Broking Ltd, a Mumbai brokerage. Sequentially or over the previous quarter, TCS’ net profit fell 1.5%, while revenue grew 8.5%. Wipro’s net profit rose 8%, while its revenue grew 9%.
The foreign exchange loss caused TCS to miss a consensus estimate of Rs1,373 crore in net profit arrived at by taking an average of the estimates of five brokerages. Wipro forecast flat business growth in the quarter ahead to $1.121 billion (Rs5,525 crore). TCS does not issue quarterly or annual guidances. The Bangalore-based company, which added only 1,877 people in the quarter net of departures and only 352 in the IT services business , said its profit rose on the back of retrenching non-performers, increased productivity, and improved margin on fixed price contracts (where payments are not linked to manhours but milestones).
Rajesh Jain, head of IT, communication and entertainment practice at audit and consulting firm KPMG India Ltd, said the long-term outlook for the IT business is “positive” although “there will be challenges in the near term”. Most large IT services firm have a significant amount of cash on their books—an advantage in the current economic environment.
raghu.k@livemint.com
Lison Joseph contributed to this story.
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First Published: Thu, Oct 23 2008. 12 16 AM IST