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Virendra Verma
Neha Kapoor

MUMBAI, May 5

FOR the first time in the history of Indian software, the top seven listed companies have reported a quarter-on-quarter (q-o-q) sequential decline in aggregate net profits for the January-March 2002 quarter compared to the previous October-December 2001 quarter, according to a CLSA Emerging Markets report.

The seven companies included in CLSA's list are — Infosys Technologies, Satyam Computers, Wipro (IT only), Digital Global, HCL Tech, Hughes Software and Polaris Software.

As per the CLSA analysis, aggregate net profit on q-o-q basis for these companies declined marginally by 0.1 per cent to Rs 693.3 crore over the previous quarter.

Combined revenues, meanwhile, have increased by 15.7 per cent at Rs 2,352.8 crore on q-o-q basis. On a year-on-year (y-o-y) basis, though, the combined net profits have increased by 7.4 per cent.

``The fourth quarter of financial year 2002 marked the first instance of a q-o-q decline in the aggregate profit of seven software services companies,'' says CLSA Emerging Markets in a recent report on the Indian software.

The highest fall in net profits (q-o-q) was reported by Hughes Software, which saw a 12.4 per cent decline at Rs 12.7 crore, followed by Wipro with a fall of 5.8 per cent at Rs 179.9 crore and Satyam a fall of 3.6 per cent at Rs 115.2 crore.

Meanwhile, buckling under pricing pressures, the software sector is shifting focus from price points to volumes.

The report says that with Wipro shifting its strategic focus towards volume growth (after defending prices for three quarters), all major Indian companies are chasing volumes, even at the cost of rate declines.

``Volumes for the top four companies grew 2.5 to 8.5 per cent q-o-q in the quarter ended March 2002. In 2002-03, pricing pressures are expected to continue, and we expect volume growth to become an increasingly more important analytical parameter, going forward,'' the report said.

According to CLSA, though pricing pressures continued through the quarter, the incremental outlook is positive with the current financial year's guidance issued by most companies depicting a 20 to 25 per cent revenue growth, higher than the expected 15 per cent.

However, a cautious first quarter outlook shows that business is expected to gain momentum from the second quarter onwards. ``In the meantime, interest in offshore outsourcing has upped, client visits continue and most price re-negotiations are reaching the end of the cycle. Improvement in utilisation to 80 per cent levels (currently 70 to 72 per cent for front liners) and continued cost rationalisations holds hope for some margin sustenance,'' says CLSA.

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