IT cos look forward to strong rupee revenues

K.Venkatasubramanian BL Research Bureau | Updated on March 12, 2018


Software companies may find their revenues grow reasonably, aided largely by a depreciating rupee, though volume growth is not likely to be strong given that October-December is a seasonally weak quarter for IT players.

The consensus seems to veer around a 2-4 per cent growth in revenues for top-tier players, in dollar terms, on a sequential basis. With the rupee depreciating around 8 per cent during the quarter, the revenue growth in rupee terms may well be about 10-13 per cent.

Historically, the December quarter has seen most top tier IT companies report 2-3 per cent sequential growth in revenues in rupee terms. This is lower than the other three quarters as volumes (person-months or man-hours billed) remain subdued because of a considerable number of holidays falling in this period.

Despite concerns of anaemic recovery or even a slowdown in key developed markets, the likes of TCS, Infosys and HCL Technologies as well as mid-tier players such as MindTree, Hexaware and NIIT Technologies may see revenues grow at a fair clip.

Clients hold up

Our conversations with a host of top tier and midcap software companies, in September, indicated that while customers are cautious on spending, there have been no cutbacks, ramp-downs in projects or pressure on pricing.

On pricing especially, a wave of discounts were offered to clients in 2008-09, most of them are yet to see any significant increases or return to the heady 2007 levels. This being the case, it is unlikely that fresh cuts would be asked for from customers.

Given that corporates, especially in the US, are sitting on a record pile of cash, the bread-and-butter segment is still in far better shape than in late 2008 and 2009.

Also, the BFSI (Banking Financial Services and Insurance) vertical and the US geography, the key drivers, have been on a steady growth path over the past 3-4 quarters. There are also other verticals driving growth for various companies: retail for Infosys, energy and utilities for Wipro and all-round contribution for TCS.

Margins too to look up:

IT companies, in general, see a 25-30 basis points improvement in operating margins for every percentage of depreciation in the rupee. This means that in the current scenario, Infosys and TCS may see their operating margins go up to 30 per cent.

Mid-tier IT companies such as MindTree and Hexaware, with their steady deal wins, would see faster growth in revenues as well as profits. An added advantage in the quarter is that wage hikes have already taken effect for most companies in April itself. Therefore, there would be limited pressure on this count on the margins.

But more than the numbers, it is management commentary on IT budgets of clients for CY12 that will be keenly followed. These are generally finalised early in the year.

Though industry research firm Gartner has indicated a slowdown in global IT spends, it remains to be seen if this translates into lower outsourcing.

Published on January 11, 2012

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like