$60 bn IT exports by '10 in sight

The ebullient results of software biggies in the last quarter have triggered a buzz that the target of $60 billion worth of software exports by 2009-10, dubbed ambitious when first talked of by Nasscom, is well within reach.

Software exports stood at $23.6 billion in 2005-06. Over 90 per cent of the revenue comes from exports.

The results assume more significance in the last quarter (ended December 31, 2006) because the billing days were lower compared with other quarters and rupee appreciation was to the order of 2-3 per cent, which ate into profitability.

Despite this, TCS is already on its way to becoming a $4 billion company, having posted over $1 billion in terms of revenue in a single quarter (this third quarter). Last quarter, it became the first Indian IT firm to register a net profit of Rs 1,000 crore in a single quarter.

TCS has reported an over 40 per cent growth in net profit over the last four quarters. Infosys, too, beat market expectations to post a 50 per cent plus year on year increase in net profit for the second successive quarter.

The company has done well by posting their third consecutive quarter of double digit dollar-term growth and operating margins expansion by 0.6 per cent.

Wipro's revenue growth rate this quarter was over 40 per cent year on year. All its business segments and wholly-owned subsidiaries have seen growth despite the rupee appreciation.

"The $60 billion target represents a 26.3 per cent compounded annual growth rate (CAGR) over the $23.6 billion figure. The CAGR is achievable when you consider the fact that the revenues of the three IT majors "" Infosys, TCS and Wipro "" have grown at an average of 43-44 per cent for the April-December 2006 period," notes Saurabh Kaushal, industry manager (IT), Frost and Sullivan (India).

The IT industry is today India's top exporter with exports of over $23.6 billion in 2005-06, 33 per cent growth compared with 2004-05's figures of $17.7 billion.

Total direct and indirect employment due to the industry will be over 9 million, according to a McKinsey-Nasscom report. In 2005-06, the overall Indian IT-ITES industry (including the domestic market) grew by 31 per cent, registering revenues of $29.6 billion, up from $22.5 billion in 2004-05.

Projecting the overall software and services to grow by 25-28 per cent, clocking revenues of $36-38 billion in 2006-07 (IT-ITES exports are likely to grow by 27-30 per cent in 2006-07, posting revenues between $29-31 billion), Kiran Karnik, president, Nasscom, had said, "The industry is on course to meet the projected target of $60 billion exports by 2009-10."

What is working for all IT services is their global delivery models and global delivery centres, which helps them derisk their businesses by expanding geographically, acquiring more companies in their domain areas, posting larger client wins and negotiating new contracts at billing rates that have increased 3-5 per cent and more.

The optimism also stems from the fact that less than 10 per cent of the market has currently been addressed and that outsourcing is considered to be more of a necessity to cut costs in today's globalised environment.

In 2005-06, the Indian ITES-BPO segment also grew by 37 per cent, contributing $6.3 billion to the total software and services exports. Exports are expected to cross $8 billion during 2006-07.

Nasscom notes that growth in the sector is being driven by steady increase in scale and depth of existing service lines; the addition of newer vertical-specific and emerging niche business services; continued expansion of service portfolios and higher value processes.

Moreover, the BPO industry has significant headroom to grow, with the offshorable potential being 12 times current revenues.

However, the challenges for the IT sector is to keep up the momentum besides stemming attrition rates and enhancing the quality and skill sets of graduates, thus maintaining the attractiveness of India for IT investments and steps to boost the domestic market.