It’s that time of the year when Indian IT firms roll out the second quarter
and half yearly results to an expectant market which asks itself the same
questions every quarter— is the downturn coming to an end?
At the time of going to press about eight companies had announced their
results and the signals were at best mixed. The good news came from companies
like Wipro, Infosys, and Mphasis who showed reasonably healthy top line and
bottom line growth. While Satyam, HCL Technologies, and Bangalore-based Mascot
Systems were still being hit.
The top line at Wipro Technologies grew 19% while Infosys and Mphasis
revenues grew by a good 35% over the same quarter last year. The big news of the
quarter in fact was Infosys’ revised growth projections for the ongoing
financial year. The company had sent out some very dire signals at the end of
FY02 when it said it expected top line growth of not more than 17 to 19% in
2002-03. On October 10, however, CEO Nandan Nilekani took every one by surprise
when he said that year end growth is more likely to be in the region of 31 to
33%–which would make FY03 almost as good as FY02 for the company.
While Wipro did not make any annual projections as usual the company expects
the same rate of growth to continue into the next quarter.
IT Companies: Financials at a Glance |
|||
Company | Q2 Revenue (Rs crore) |
Growth% (over same Q last year) |
Profit growth % (over same Qs last year) |
Infosys | 879.6 | 35 | 12 (profit after tax) |
Wipro Tech |
679.1 | 19 | NA |
Mascot Systems |
90.2 | -18 | —53 (profit after tax) |
MphasiS | 102.9 | 35 | 61 (profit after tax) |
HCL Technologies |
442.4 | 19 | —22 (net profit after sales incentive and provisions) |
Kshema Technologies |
15.8 | 26 | NA |
Satyam Computer |
505 | 11.47 | —12 (net profit) |
Billing rates
The good news for all these three companies though has been on the billing
rate front. For the first time in many quarters Infosys’ revenue growth
comprised of a volume growth of 11.7% and a price growth of 4.4% (for the past
many quarters that used to a price decline of around 3% or so). Says Vivek Paul,
CEO Wipro Technologies: "old deals are no longer under constant
re-negotiation and we have seen almost all new deals this quarter come at higher
billing rates." According to Mphasis, onsite-billing rates have improved by
3.1 %, from $64 per hour to about $66 per hour, even as volumes have grown 15%.
So, is this a climb back to pre-2000 levels? Despite the changed environment
these last two quarters both Infosys and Wipro have warned of "continuing
billing rate pressure" during the year. Says Shekhar Avasthy, assistant
manager software and services, IDC India, "once the rates have dropped to a
certain level, they never really go back to the original level easily. Overall
billing rates will remain at lower-than-2000 levels for some time. However the
exchange rate fluctuations and a possible weakening of the rupee (given the
US-Iraq situation and the trend in crude oil price) could help push the rates
up."
For the moment, some of the top line and billing rate growth, in all the
three Bangalore based companies has been reflected in some aggressive hiring
last quarter. Infosys added 1806 employees, while net additions at Wipro
(excluding the 370 that were asked to leave under its bottom 5% policy) amounted
to 753. The ITeS divisions of Mphasis—MsourcE and Wipro’s Spectramind also
added some new heads.
The bad news
Despite this the mood in the industry is one of cautious optimism. Some of
the other results that have come in so far haven’t been great. Though revenues
at Hyderabad based Satyam grew by 11% year on year to Rs 505 crore, net profit
fell by almost 12% when compared to Q2 last year. Though the company expects no
major growth in the next quarter it has retained its annual forecast of 18-20%
growth for the year ending March 2003. Similarly revenues at HCL Technologies
grew 19% to Rs 442 crores, PAT actually slid by a huge 33% to Rs 74.84 crore
against Rs 112.13 crore last year. Also, Mascot Systems’ quarterly net profit
after tax, plummeted to Rs. 64.9 million from 138.8 million last year.
Wipro Chairman Azim Premji says the good results by a few companies including
Wipro are not necessarily an indicator of an upturn. "This does not mean
that the global downturn is over. It does mean however that the Indian software
exports sector is picking up due to the visibly increased focus on
outsourcing." A recent survey of CIOs conducted by Merrill Lynch for the
quarter ended September this year revealed that the IT spend to be outsourced to
India by global companies is set to double from the current 3 % to 6 % in the
next calendar year.
Satyam Chairman B Ramalinga Raju agrees. "Even as Global IT services
companies were affected by the challenging market scenario, Satyam benefited
from the growing trend towards higher offshore outsourcing. In our opinion this
is likely to continue and gain momentum," he said in a letter to investors.
For the IT software services exports sector the growing focus on outsourcing
and offshoring turned out to be a silver lining this quarter. As for the
downturn, the market’s still out on that one.
Team DQ in Bangalore
Hardware on the Easy Path?
Finally, |
VASWANI |
Suresh Vaswani, head of Wipro Infotech, was a comparatively happier man at
the quarterly results this October. The numbers seem to be looking up finally.
The company’s branded PCs and servers grew by 16% and 47% respectively in
units terms compared to the same quarter last year. (PCs–19,000 units this
quarter as against 16,350 units during the same period last year. Branded
servers–900 units against last year’s 612).
At the same time, Infotech’s enterprise server and storage business grew by
over 60 % in value terms while the networking business grew by 8 %. The division’s
revenues for quarter ended September 30 2002, touched Rs 220 crore, representing
a 17 % growth on a year-on-year basis.
Vaswani is wary of making any predictions but he says he’s extremely
heartened by two consecutive quarters of growth for the division, which was hit
more than most by the downturn. A recent MAIT study also seems to indicate that
domestic hardware sales may be looking up. The recently announced results of
MAIT’s first ever-quarterly industry performance review for April-June of
FY03. The study involved data collection from 6 major vendors and 367
resellers/vendors across 13 metros. Some of the key findings of the study are:
n 5.08 lakh
Desktop PCs sold in first quarter of this year. This is about 63% of unit sales
in the first half of 01-02.
n PC sales
during the year expected to grow by 15% overall crossing 19 lakh units.
n Sales of
desktop PCs, notebooks, dot matrix printers and laser printers put together in
the first half of FY03 expected to comfortably exceed that in first half of last
year showing definite signs of market recovery. (see graph)
n Trend
towards increasing sales in B and C class cities and towns continues.