Bring on the Champagne



As far as the eye can see, there is only one way this road is going, and it
is straight ahead. No gainsaying the fact that the same road will have its share
of turns and bends, but for now, the Q2 results of tech czars permit talk only
of growth. Infosys led way when it declared its quarterly results, which showed
a net profit of Rs 447 crore, a 49% increase over the quarter ended September
30, 2003. Then came Tata Consultancy Services, which registered a net profit of
Rs 576.40 crore on a y-o-y basis. Its half-year revenues have already crossed
the $1 bn mark. Next came Wipro’s announcements of its results, which showed
it had posted a net profit of Rs 412 crore, an increase of 79% as against the
same period last year.

In terms of service lines, after a couple of subdued quarters, Wipro’s BPO
business rebounded strongly with a sequential revenue growth of nearly 20%.
According to research analyst Nimesh Chandan, Strategic India, "The top
three companies have averaged a 12-15% sequential growth in topline,
and 14-16% bottomline." If these results are anything to go by, it looks
like the software industry is all set for impressive growth.

“Every major corporation in the world is outsourcing a large part of its IT business for better economics and better quality of service”
Mohan Das Pai, CFO, Infosys

These figures are also an indicator of the growing acceptability of
offshoring as a strategic business practice. S Mahalingam, CFO, TCS, commented,
"TCS achieved its spectacular financial performance through its ability to
execute large orders using its core strength across multiple geographies and
different vertical domains. The company was able to report strong growth in
revenues and profits, as its aggressive strategy to harness the opportunities in
the outsourcing paid dividends." TCS added 52 new clients in three months,
while Infosys added 32 and Wipro 34. Most of this new business has come from
increased international IT spends. Mohan Das Pai, CFO, Infosys, described
off-shoring as a mega-trend and added, "From our new clientele, only 2-2.5%
of revenues have come from India, while the rest is from international clients.
Every major corporation in the world is outsourcing a large part of its IT
business for better economics and better quality of service. Those not
outsourcing are feeling the pressure of losing out to those who are."

The smaller companies are more dependent on fewer customers (e.g. four or
five major customers), who constitute a large part of the revenues, and this
over-dependency can cause fluctuating results. Even for the trinity, customer
addition has seen the reduction of concentration of revenues from top clients.

Another piece of good news is that these fairly strong customer additions
also translate into better realizations. On the all-important question of
billing rates, experts say that new customers have come at higher-than-average
billing rates. These have now either stabilized or may be firming up slightly,
which is a good sign for the IT industry. Suresh Senapaty, VP, finance, Wipro,
said, "Improvement in operating margins in our global IT services business
was driven by better price realization for onsite projects, an increase in the
proportion of revenues from offshore projects, and continued operational
improvements."

While Hughes Software Systems netted a 52% net growth in profits, MphasiS
lost its brownie points on posting net profits of only Rs 51 mn in Q2 2004, as
compared to Rs 272.69 mn in Q2, 2003. The tech wizards have done well, though
selectively, and MphasiS is one of those to have reported sluggish organic
growth.

Experts say that the software market is definitely poised for a sustained
growth for at least a year. The quarters ahead would require a complacency-free
approach and smart offshore moves alongside competitive onshore ones. According
to Pai of Infosys, "the global delivery model has expanded to include a
whole new array of services, which include testing, remote management of
infrastructure, consulting and higher-end services like research".
Enterprise solution packages are also amongst the fastest speed gatherers,
growing horizontally. Analysts report that the backend business is here to stay,
and it all depends on how well Indian companies are able to procure more and
more global business, and follow the lead of the big ones, who are already
capitalizing on their first mover advantages.

Jasmine Kaur in New
Delhi

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