Indian IT services sales to drop: Morgan Stanley

Indian computer services companies, including Tata Consultancy Services (TCS), were facing declining revenue as budget cuts, mergers and bankruptcy at their customers weighed on demand said Morgan Stanley.

Tata, Hexaware Technologies Ltd and Tech Mahindra Ltd were cut to “underweight” from “equal-weight” by Morgan Stanley analysts Vipin Khare and Gaurav Rateria, who said they remain cautious on the industry.

Organic revenue may decline as much as 20 per cent for the year starting April 1, the analysts wrote in a March 11 report.

“We expect the coming quarters to bring further erosion of demand for Indian IT vendors’ services,” the analysts wrote. “It is too early to look for a revival.”

Customers from Citigroup Inc to Boeing Co are among companies that are facing slowing earnings growth amid the financial crisis and global recession.

The World Bank said in a March 8 report that the international economy was likely to shrink for the first time since World War II, and trade will decline by the most in 80 years.

Banking, financial services and insurance revenue might be among the worst hit by the crisis, with sales from this industry shrinking as much as 15 per cent this year, estimated Morgan Stanley.

TCS, India’s largest computer-services provider, might post a compound annual decline of 3 per cent in its earnings for 2008 to 2011, Morgan Stanley estimated. Earnings in the next fiscal year, starting April 1, might also be affected by an estimated currency loss of about $160 million, the analysts said.

TATA CONSULTANCY
Pradipta Bagchi, a spokesman at TCS, declined to comment on the report today. Tata Consultancy, which last month reported third-quarter profit that missed estimates, might not meet its goal of posting $10 billion in sales by 2010, Chief Executive S Ramadorai said on Feb. 11.

Tata gained 2.1 per cent to Rs 472.5 in Mumbai trading today. It has dropped 1.1 per cent this year, extending last year’s record 56 per cent decline for the stock. The benchmark Sensex index rose 2.3 per cent at 11:55 am local time.

Infosys Technologies Ltd, Tata’s largest rival, gained 11 per cent in 2009, while Wipro Ltd, india’s third-biggest computer-services provider, retreated 9.8 per cent.

Morgan Stanley cut its estimates for Infosys’s 2010 and 2011 rupee-denominated earnings by about 8 per cent, and trimmed its forecasts for Wipro by as much as 13 per cent, the report said.

Hexaware, a small software services provider, gained 0.5 per cent to Rs 21.3, while Tech Mahindra gained 3.1 per cent to Rs 271 today.