The Hindu Business Line : Software sector posts robust performance

The second quarter of 2006-07 proved to be a blockbuster for the software service majors on the financial front. The key highlights that are apparent from the financials were:

Practically every frontline vendor clocked double-digit sequential growth in revenues, underlining the strong offshoring momentum.

This revenue trend also translated into strong operating and profit before interest and tax (PBIT) growth for all software majors, with the exception of Satyam.

Bolstered by this robust momentum, Infosys and TCS also recorded healthy expansion in operating profit margins.

Operational metrics

Scanning the operational parameters revealed the following trends:

The contribution of the top client, top five and top 10 clients continued to be strong for all vendors.

The contribution of the top client was particularly robust for TCS and Infosys. It was also supported by a healthy trend of clients moving across different revenue buckets, from $1 million to $10 million and all the way up to $50 million.

For TCS, the number of $50-million clients increased from 10 to 15 on a sequential basis in the latest quarter.

The proportion of repeat business (which remains over 95 per cent) has been coming down to some extent across all vendors.

Good augury

The increase in contribution from new business is likely to augur well for realisations, as typically new clients command higher billing rates vis-à-vis the existing ones.

The contribution from new service offerings such as infrastructure, engineering services, testing or consulting has been going up steadily for all vendors.

This has been provided in the table separately, with TCS sharing the service offering break-up for the first time.

Similarly, the contribution from newer verticals such as retail, transportation and healthcare has also been improving, again provided as a part of the table.

The strong underlying business momentum is also evident from the robust net additions to employees logged by all frontline vendors.

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