Analysts Upgrade Software Firms On Re Fall

The infotech industry will witness hectic activity owing to massive contracts for the year 2000 (Y2K) problem. The fall in rupee value will have significant positive effect on the earnings of software companies. While the picture may turn rosy for software firms, hardware companies are expected to go through a rough patch.

Fall of the rupee value and its impact: According to Alroy Lobo, Kotak Securities, the impact of the fall in rupee will vary from company to company depending on the element of onshore and offshore activity.

Satyam, Infosys and BFL would benefit from offshore activity as 35 per cent of their work is onsite-oriented. The impact on the bottomline will be positive for export-oriented companies except Mastek and NIIT where the proportion is lower. For example, if Infosys is slated to have earnings worth Rs 60 crore, every five per cent depreciation in the value of rupee will get them an extra Rs 3 crore , he said.

 

Aditya Srinath of SSKI is of the view that rupee devaluation will result in gains for players with a larger proportion of fixed price contracts.

There is a possibility of rate renegotiation in some of the bespoken orders with players known to be hard-bargaining customers. They have also been known in the past to cut corners on dollar rates considering the countrys cost structures. For example, Infosys gets over 30 per cent of revenues from fixed price contracts (FPCs).

My numbers have factored in a five-seven per cent depreciation annually, and there is no intention to move them up, he said.

Ajay Malpani of Caspian Research is of the view that the Indian currency is expected to hover around Rs 42 against the dollar by March 1998, and he has, therefore, revised his earnings in tune with this rate.

The recent fall in rupee will bring in 10-15 per cent rise in earnings from projections made earlier. I am revising earnings estimates for most of my software stocks upwards.

For example, my earnings estimate for Infosys has been revised upwards to about Rs 59.20 crore from Rs 51 crore estimated before the depreciation, he said.

nImpact of government decision to import hardware from vendors abroad: Lobo of Kotak Securities opines that since government is a major client for domestic hardware vendors, most of the hardware companies would be affected.

The company that would be affected the most due to the decision will be Mastek. Prices of hardwares have also crashed. It is not advisable for companies like Wipro Acer to make any purchases in huge volumes, he commented.

Aditya Srinath is of the view that the government sector is perhaps vitally critical to hardware sales (over 25 per cent).

One reason for the less than expected 24 per cent growth in 1997 could be attributed to the government sector.

In the personal computer market, the growth has been predominantly from the home sector (probably 60 per cent year on year).

However, the fourth quarter is dominated by the corporate and government sector. Weak demand from both the quarters is likely to pare down hardware growth to 20 per cent, he said.

Malpani of Caspian says the government is, by far, the largest buyer of personal computers in the country.

With respect to the effect on domestic hardware vendors, I do not see any domestic vendor, except Digital or Wipro Acer, surviving in India in the long run. All other vendors are already facing a lot of problems and incurring high losses.

The biggest losers would be companies like PCL and HCL, he opined.