Bangalore: Technology firms such as Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Wipro Ltd will start reporting second quarter (Q2) earnings this week, with analysts lowering their expectations for the industry as the US economy battles its worst crisis in decades.
The US is the largest market for Indian IT firms, which had expected business growth to come in the second half of the fiscal year, with a weaker rupee providing a boost to exports. The rupee fell Monday to its lowest level against the dollar in more than five years.
The US financial crisis that has felled Bear Stearns Companies Inc. and Lehman Brothers Holdings Inc. and led to the sale of Merrill Lynch and Co. to Bank of America Corp. is prompting analysts to reduce revenue estimates for tech firms even for the next year.
Demand for offshore work is expected to slow, forcing software firms to put hiring plans on hold. On 30 September, India’s software lobby Nasscom had said it may reduce in December its July projections of 21-24% growth for fiscal 2009.
In a 2 October report on Indian IT services, JPMorgan India Pvt. Ltd had forecast a conservative 15% revenue growth for large Indian IT companies for fiscal 2010, and cut estimates and target price earnings across the board to factor in lower tech spending.
Infosys, seen as the weathervane for the sector, will report results on Friday, followed by Satyam Computer Services Ltd on 17 October, TCS on 21 October and Wipro on 22 October.
Projections on campus hiring, demand from clients and importantly, “whether pricing is stable”, will be the factors to watch out for, says Gaurav Dua, head of research at Sharekhan Ltd, a Mumbai brokerage.
In a 9 September report on enterprise IT services, Forrester Research Inc. had said 43% of US firms surveyed had already cut overall IT budgets, and 29% had put projects and new initiatives through a more thorough test of return on investment. It added that 43% of those surveyed were increasing use of offshore vendors.
A Mint analysis of forecasts by four brokerages showed Infosys’ average sales revenue for the quarter to September was likely to grow between 8.8% and 9.7% at Rs5,298 crore, marginally higher than the firm’s own estimate. The average net profit projected by analysts is Rs1,397 crore. In June, Infosys had forecast revenue for Q2 to be in the range of Rs5,229-5,272 crore.
An analysis of forecasts by the five brokerages—Angel Broking, Sharekhan, Motilal Oswal Securities Ltd, Religare Securities Ltd and Citi Investment Research, a unit of Citigroup Global Markets Inc.—showed revenue at TCS may grow between 5.8% and 8.8% to Rs6,877 crore. The firm’s net profit is expected to be Rs1,373 crore.
Wipro, the third largest IT vendor, is expected to report a profit of Rs872.90 crore on revenue of Rs6,331.20 crore, including its consumer products business, according to an analysis of estimates by four brokerages. In July, Wipro had forecast that it would earn $1.09 billion (Rs5,177.50 crore today), from IT services in Q2.
“All the benefits would come from currency depreciation,” said Harit Shah, an equity analyst with Angel Broking, a Mumbai brokerage. The rupee dropped 9% against the dollar, the currency Indian firms bill customers in the US, during the quarter to September. “There is little volume growth,” he said.
Satyam is expected to post flat quarterly profit growth at Rs539.30 crore on a revenue of Rs2,824 crore, on reduced business from customers such as Merrill Lynch. In June, the Satyam had forecast revenue to grow between Rs2,743 crore and Rs2,769 crore.
A Credit Suisse survey of 20 small Indian IT firms said these firms are more open to admitting lower-than-expect-ed hiring, pricing pressures, contract delays and possible revenue misses. “With possible earnings downgrade, we believe sector performance will stay lacklustre,” the firm had said in a 29 September report.