IT firms to post robust Q3 profits on rupee fall: experts

Helped by a sharp depreciation in rupee, Indian IT companies are expected to post an average earning growth of up to 23% for the third quarter of the current fiscal.

Experts believe that the sharp rise in profitability would be largely driven by a depreciating rupee vis-a-vis the US dollar.

"We expect our IT coverage universe to register earnings growth of 23% on the back of strong 31% top-line growth," brokerage firm Angel Broking said in a report.

Religare Institutional Research, part of Religare group, said in another report that IT companies may register an average of 17.8% rise in profitability in October-December quarter of the current fiscal.

Besides, revenue growth of these firms are expected to around 29.2% in the third quarter, Religare said.

Among others, large software exporters such as Tata Consultancy Services, Infosys and Wipro would report a positive impact of the currency market trends, when they report their earnings for the September-December quarter.

Profitability of companies like TCS, Infosys and Wipro is expected to rebound by a healthy 25.1%, 23.4% and 12.8%, respectively, resulting in combined average profit after tax growth of 21.6%.

In addition, sales growth for these top three IT service providers in year-on-year terms is expected to be about 31.3%.

Echoing a similar view, Wellindia Group said that growth would continue for the major big IT companies such as TCS, Infosys, Wipro etc. In addition, tier-I IT companies are expected to register strong earnings growth, earnings for mid-tier IT companies are likely to be a mixed bag.

"...But pressure would continue on Mid-cap IT companies like Patni, Persistent Systems, Mphasis etc," said Vivek K Negi Head (Research and Training) at Wellindia Group.

He further said, "With the revival in the US economy the major IT companies in India would show steady performance in terms of top-line. But weak rupee would add to the bottom-line of these companies."

The rupee has fallen more than 8% against the US dollar in the third quarter to close at 53.10/11 on December 30, and this is expected to result in a margin boost to the extent of 200 to 300 basis points. Besides, demand for IT solutions also remains better than expected, leading to modest volume growth.

The report said that employee cost would put pressure on the bottom-line of the companies.

"We can expect increase in business from Africa, Asia and Australia whereas, there would be significant decline in the orders from Europe and the US," Negi added.

Overall, Sensex companies are expected to maintain healthy top-line growth momentum, with projected growth of 18.5% year-on-year in sales. However, growth is likely to be slower than the 23% increase witnessed in the second quarter of the current fiscal.

On the bottom-line front, margin woes are likely to continue, leading to low 7.7% year-on-year earnings growth.