The Hindu Business Line : Rising rupee may hit IT cos’ revenues in June quarter

A stronger rupee would further affect the IT sector earnings for the June quarter amidst continuing decline in volumes and pricing pressure, which may be partially offset by favourable cross currency movements.

The rupee, which remained weak in the past few quarters providing some respite to the crisis-hit industry, emerged stronger during the June quarter when it gained an average of 2 per cent against the dollar. The average rupee-dollar rate for June quarter was Rs 48.7 to a dollar, compared with Rs 49.7 in the previous quarter.

Other currencies

On the other hand, the dollar turned weaker against currencies such as euro, pound and Australian dollar; that would help companies meet their forecast as well as mitigate the impact of a stronger rupee. The euro gained around 4 per cent, the British pound 7 per cent and the Australian dollar a 12.3 per cent against the dollar.

Analysts said the operating profit margins (OPM) for the period could see a decline due to the stronger rupee and decline in volumes and utilisation rates.

Brokerage firm Sharekhan expects OPM of top tier companies to decline by 40-225 basis points. “The decline in the OPM is likely to be partially offset by favourable cross-currency movements and lower variable pay in the wage component,” said Sharekhan in a note to clients.

Decline in net profit

A Business Line poll of seven brokerages revealed that Infosys would report an average sequential revenue decline of 5.5 per cent at Rs 5,323 crore, short of its guidance for the quarter.

The company had forecast revenue of Rs 5,379 crore to Rs 5,480 crore for the period. Net profit is expected to decline by 15 per cent sequentially to Rs 1,376.3 crore.

A section of the analysts feels that the favourable cross currency movements could prompt Infosys to increase its full year dollar-term forecast. “Expect an upgrade in dollar-term revenue guidance for Infosys aided only by cross currency benefits and we would be surprised by any volume-led increase in guidance,” said Mr Manik Taneja from Emkay Research in a note to clients.

Largest exporter TCS is expected to post an average sequential decline of 5 per cent at Rs 6,811 crore, while net profit is likely to see a drop of 4.5 per cent at Rs 1,272.5 crore.

Wipro Ltd is expected to report a marginal decline of 0.04 per cent at Rs 6,449.4 crore for the quarter, while net profit is expected to be down 8.4 per cent at Rs 924.5 crore.

HCL Technologies is expected to report a 5 per cent sequential decline in revenue at Rs 2,724.5 crore, while profits are expected to grow 32 per cent at Rs 288.75 crore due to lower forex losses.

Mr Harit Shah of Angel Broking expects the top-tier companies to report a 1-4 per cent sequential decline in volumes along with a 1-2 per cent sequential fall in pricing. “However, with the global economy seemingly having hit the bottom and with things likely to improve from here on, pricing pressures could recede to some extent in the coming quarters,” Mr Shah added.

Related Stories:
Cost management, rupee help earnings
Rising Re: Infosys turns focus on Europe

More Stories on : Software | Outlook | Forex

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