• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

K. Venkatasubramanian

BL Research Bureau The “big four” of the Indian IT services space have had a turbulent March quarter, with their key operating parameters raising several concerns. These include revenues from their top-clients, volume growth, utilisation and repeat business generated from clients, all of which have seen sequential declines. Infosys Technologies, TCS, Wipro and HCL Technologies are taken up for analysis here.

But margin management within a narrow band has still been achieved (barring HCL) by trimming employee expenses and SG&A (selling, general and marketing expenses). An increase in the proportion of fixed-price contacts, which ensure better realisations, has been achieved by each of these four companies in the quarter.

Infosys, TCS and Wipro have all reported a decline in volumes (man-months billed) between 1.4 per cent and 6.3 per cent compared to the December quarter. Correspondingly, the utilisation for these companies has also seen a sequential decline. A lower utilisation means higher bench costs for these companies. Revenue from their respective top-client has also seen a decline for each of these companies, as has the extent of repeat business generated from existing clients.

Taken together, all these facts point to declining IT budgets of clients and to the fact that ramp-up on existing deals is not being experienced.

What has been more worrisome is that Infosys, TCS and HCL have had decline a in billing rates of 1-3 per cent. Companies such as Infosys and TCS have indicated that clients may come back for further price discounts. Together with stuttering volumes, margin management, going forward, will possibly come only from working with cost levers.

Among the cost levers, increasing offshore component of revenues, which optimises costs, is a key aspect.

TCS and Wipro have been successful in enhancing their offshore presence. But HCL and Infosys have seen their onsite proportion of revenues go up. For HCL, it has gone up by 12.4 percentage points sequentially, possibly because of the Axon acquisition where most employees are onsite. TCS and HCL have indicated that they may recruit people in the US and Europe going forward. A greater onsite presence is a strong possibility in the future for all these companies given that there are protectionist voices being raised both in the US and Europe. This could create a high-cost revenue structure for all these companies.

Among other cost levers, employee costs have been reined in. Infosys, TCS and Wipro have given wage hikes a go by this year.

HCL Tech alone witnessed a 20.3 per cent increase in employee costs thanks to the Axon acquisition. SG&A may actually go up going forward. Infosys, for instance, has indicated that it would marginally increase SG&A for better mining of existing and new clients.

More Stories on : Software | Outlook | Labour Reforms | Infosys Technologies Ltd | Tata Consultancy Services Ltd | Wipro Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line