Top-tier IT companies are expected to report a decent sequential topline growth of 7.5% quarter on quarter (including only combined IT services businesses for Wipro) Q1FY09. This will be largely driven by volume growth of 4-5% q-o-q and 20-22% y-o-y, with the rest coming from favourable currency movements.
TCS and Infosys are expected to show q-o-q sales increase of 6-7% and 7-8%, respectively. However, margins of both the companies are expected to be under pressure as in addition to visa cost, the companies are expected to hike wages for their offshore employees (11-13% for Infosys, 8-10% for TCS) and onsite employees (4-5% for Infosys, 3-4% for TCS) in Q1FY09. These factors are expected to shrink the margins of both the companies, Harit Shah, analyst, Angel Broking, says, “The last quarter for TCS was subdued due to cancellation of orders from two BFSI clients in the US. A smaller growth rate is estimated for Q1FY09 and probably the second quarter will be relatively better.”
On a quarterly basis, the rupee on an average has depreciated by 4.5% against the dollar. Such a high depreciation in the quarter is likely to have a positive impact on the margins of the companies (Infosys assumed Rs 40.02 per dollar and Satyam Computer Services Rs 40 a dollar). On the other hand, the rupee deprecation will have a negative impact on companies that have hedged higher this year.
Anurag Purohit, analyst, Religare says, “Companies that have hedged higher than earlier will experience increased forex losses as the rupee has depreciated sharply.” HCL Technologies’ net income is expected to decline by 29.6% y-o-y, as the company had reported forex gains of Rs 250 crore in Q1FY08. Beside this, HCL and Wipro had increased their hedge positions in Q4FY08. Hence, the two companies may report higher forex losses, given the recent rupee depreciation.
The pricing have been largely considered conservative by many analysts assuming flat billing rates given the current uncertainty in the US economy and the likelihood that clients will ask for greater value for every IT dollar spent. However, it is expected that over the longer term, pricing will witness an up-tick led mainly by an improving service mix and productivity enhancements.
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