BANGALORE: Delayed investment decisions by clients waiting to see more evidence of a more broad-based, macro-economic recovery could hold back revenue growth at the top Indian information technology companies in their traditionally-strong second quarter.
The top four Indian software services exporters, including Tata Consultancy Services, Infosys, Wipro and HCL Technologies, are expected to report a sequential revenue growth of 2-4% in the three months to September 30, down from about 4.1-4.7% in the same period a year ago.
The Indian IT industry, which has been hurt by the near absence of discretionary spending by its clients, was hoping to combat the current tough times by riding on the back of a weak rupee. But the recent reforms push by the UPA government has put a stop to such hopes. The rupee has been steadily gaining in strength and is now trading below 52 a dollar, from about 56 even a month back.
The second quarterly earnings will be keenly watched by industry grouping Nasscom, which is expected to revisit its sector sales growth forecast of 11-14% for fiscal ending March 2013. Infosys will kick off the earnings season on Friday.
Among the top players, India's largest IT company TCS is expected to lead with about 4.8% growth in revenues backed by cash flows from existing deals in retail, financial services and insurance. Profits for the $10-billion IT firm are likely to grow by 5%. Rival Infosys is expected to post a lower growth of about 3.3-3.5%, according to estimates by various brokerage firms.
"Second quarter will be slightly weak for Infosys versus TCS and HCL Tech. But we strongly believe that the wide performance gap will narrow down to a meagre 1%. We also expect Infosys to reiterate its 5% growth guidance for FY13," said Edelweiss Securities analysts Sandip Agarwal and Omkar Hadkar in a pre-earnings note.
Some analysts, such as Mumbai-based BRICS and IDFC, expect Infosys to cut its rupee revenue outlook for the year. "Infosys could also lower its US dollar guidance if the company's second-quarter performance again comes below expectations," said BRICS in a note.
On October 17, Noida-based HCL Technologies is expected to post a top line growth of about 4.5% due to the higher number of deals it bagged in the last 12 months. But net profit is likely to decline by about 2% on currency appreciation and wage hikes, which will shave off 160 basis points from the margins of the IT firm.
Wipro is expected to lag the entire Tier-I IT service providers group with about 2% sequential revenue growth. Net profit at Wipro is expected to dip by 1.5% due to wage hikes in the quarter.
"Wipro's client profile is not improving enough. Firstly, in spite of them growing $100 million accounts, their top line is not showing corresponding increase." reasons Sudin Apte, chief executive at outsourcing advisory Offshore Insights. "We believe either there has been a large client churn or loss of business from some clients."
For all IT firms, tailwinds such as fresher hiring and absence of US visa costs will be partly offset by wage hikes and investments. However, the risk of a double-dip recession and further decline in demand has mitigated.
"The stimulus measures taken by the developed economies of USA and EU have eased concerns of catastrophic defaults /bankruptcies. This may prevent demand from falling in the foreseeable future," said Dipen Shah of Kotak Securities.
Source-TOI
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