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.

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