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A good show by software cos

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Our Bureau

Chennai, Jan. 24

FRONTLINE software companies logged another quarter of strong growth on the revenue and earnings front for the period ended December 31, 2005. This was quite encouraging, as the third quarter typically has fewer working days owing to the holiday season in the US.

While the performance of Infosys Technologies and Tata Consultancy Services were in line with market expectations, Wipro and Satyam Computers exceeded them comfortably (See Table).

Financials:

For the second successive quarter, the software majors clocked double digit sequential (quarter-on-quarter) growth in revenues. The growth picture on the earnings front, however, was mixed.

Wipro Technologies, the Global IT Services and Products arm of the diversified Wipro surprised the markets with a 12 per cent rise in revenues and 13.8 per cent jump in profit before interest and tax (PBIT). Even as Wipro's IT services PBIT margin remained stable, the BPO margins marched up by 3.5 percentage points on a sequential basis.

Satyam continued its good performance run, with an operating profit growth of 13.8 per cent on a revenue growth of 9.5 per cent on a sequential basis. This helped its PBIT margin expand by a percentage point to 24.9 per cent.

It also proved to be an unusually active quarter on the deal making and acquisition front. TCS acquired Australia based FNS to enhance its banking products portfolio and Comicrom in Chile to expand its foothold in the BPO segment. Wipro also snapped up two companies - Austria based NewLogic and mPower, US towards the fag end of the third quarter.

An extremely volatile rupee turned out to be the other key highlight of the quarter, forcing companies to re-examine their hedging strategies.

Operating metrics:

Unlike the second quarter, in the latest quarter, the top client and top five clients powered the revenue growth of the software majors. The increase in client pipeline in different revenue buckets ranging from $1 million to $10 million continued to be strong.

The client additions also remained healthy and in line with the second quarter. The trend of employee additions presents a mixed picture, with TCS and Wipro making much stronger addition compared to its peers.

(This article was published in the Business Line print edition dated January 25, 2006)
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