The Hindu Business Line : Software majors turn in robust performance

FRONTLINE software companies have turned in a robust performance on the revenue and earnings front for the quarter ended September 30, 2005. A few key variables stand out in this earnings performance (see table):

Financials

The sequential (quarter-on-quarter or QoQ) growth of revenues and profit before interest and tax (PBIT) has been strong across-the-board for the four software majors.

However, Satyam's PBIT growth at 17.4 per cent on a revenue growth of 9.1 per cent stands out in comparison to its peers.

Though QoQ is a key benchmark to analyse the performance of software companies, the year-on-year growth is also assuming importance. For Wipro, while the revenues of its global IT services and products division has grown by 26 per cent, its PBIT has moved up by only 11.9 per cent. This indicates pressure on their PBIT margins, which declined to 24 per cent from 28 per cent on a year-on-year basis. The sharp decline is attributable largely to a sharp dip in the BPO service margins to 13 per cent from 22 per cent.

Operating metrics

Client composition and pipeline: The sharp rise in the contribution from clients - lying between numbers five and ten in the top client list, has powered the growth of all the four software majors. The top client of Tata Consultancy Services grew by 26.4 per cent on a sequential basis, even as the top client of Infosys and Satyam each recorded negative growth. The client additions at 74 were the strongest in the case of TCS, while it was encouraging for all the majors. The client pipeline in different brackets - $ 1, $ 5 and $10 million - shows the potential for growth along this chain.

Employee count: On a sequential and year-on-year basis, the net additions of employees by Infosys were significantly higher than revenue growth. This is in contrast to TCS and Wipro in which the year-on-year net additions lagged behind revenue growth.

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