IT biggies' net in line with expectations

Despite wage hikes, an appreciating rupee, and fewer working days nibbling at their profit margins during the quarter ended December 31, 2007, the five IT majors "� Tata Consultancy Services (TCS), Infosys Technologies, Wipro, Satyam Computer Services and HCL Technologies "� posted revenue and net profit figures that were in line with market expectations.

All the IT majors attributed their growth in profit (according to Indian GAAP) to the addition of clients, improvement in price realisation, and efficient management of costs.

Though the rupee appreciated by nearly 2 per cent in the quarter under review, the five IT majors improved their operating margins by around 100 basis points. 
 

NECK AND NECK
Name	Q3 Revenue			Q3 Net profit
	Amount Rs cr	Y-o-Y in %	Q-o-Q in %	Amount Rs cr	Y-o-Y in %	Q-o-Q in %
TCS	5,923	22	5	1,327	19	6
Infosys	4,271	17	4	1,231	25	12*
Wipro	5,303	33.98	11	854	11.57	4
Satyam	2,195.60	32.2	8.1	433.63	28.6	6
HCL Tech	1,816.60	24	6.3	332.9	16.3	7.9
* includes tax reversal of Rs 50 cr, else figure would have been around 7.5%

Satyam outshone its peers even though the third quarter is generally weak for it. It outperformed due to a better price realisation of about 6-7 per cent. Its volume growth , too, at 9.4 per cent exceeded market expectations. The other IT majors registered volume growth between 4-7 per cent.

Wipro's performance, especially its guidance, was relatively muted, compared with its peers.

On a sequential (trailing quarter) basis, Wipro scored on the revenue growth, but disappointed when it came to net profit growth figures of a mere 4 per cent (much of the dip, though, was due to the acquisition of Infocrossing), according to Krupal Maniar, an analyst at ICICI Securities.

HCL Technologies scored with a 7.9 per cent rise in net profit. TCS' net profit growth, too, was muted at 6 per cent. Analysts note that Wipro has not been getting high realisations when compared with its peers.

Waiting for a call on IT budgets, Avinash Vashist, chairman and CEO, Tholons Advisory, a research and consulting firm, says IT firms can gain more efficiency by shifting more work to tier-II and tier-III cities.

However, most analysts are currently more concerned with indications of the IT budgets for calender year 2008 rather than the third quarter performance of IT firms.

Going ahead, while top line growth will not be a concern, these firms need to focus on maintaining profitability, cautions Harit Shah, research analyst, Angel Broking. ICICI's Maniar says that even if IT budget cuts are effected, outsourcing and offshoring are bound to increase.

Hiring & Attrition
Adding the hiring figures for the quarter under review, the five IT majors now account for almost 18 per cent of the total IT-BPO sector employees.

Wipro has hired fewer people comparatively, in a bid to cut costs and improve employee utilisation.

A worrisome factor, though, is that Wipro has an annualised attrition rate of 18 per cent, which does not compare favourably with Satyam (13.1%), Infosys Technologies (13.7%) and TCS (12%).

Fourth quarter outlook
Wipro has decided to raise the salaries of onsite employees, which is expected to have an adverse impact of about 1 per cent in the fourth quarter.

And except for management quotes from all the IT majors, on being cautious about the market, top-line growth for them will not be a concern for the next two-three quarters.

Overall, their performance is expected to be in line with market expectations since the rupee has not appreciated much.