Advertisment

Some Sweet, Some Sour

author-image
DQI Bureau
New Update

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?

Advertisment

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.

Advertisment
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."

Advertisment

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.

Advertisment

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

Advertisment

Hardware on the Easy Path?



Finally,

some reason to break open the champagne

VASWANI

Advertisment

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:

Advertisment

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.

Advertisment