Info-tech

Weak rupee to drive IT cos’ earnings growth

PTI New Delhi | Updated on January 10, 2012 Published on January 10, 2012

Helped by a sharp depreciation in rupee, Indian IT companies are expected to post an average earnings growth of up to 23 per cent for the third quarter of the current fiscal.

Experts believe that the sharp rise in profitability would be largely driven by a depreciating rupee vis-a-vis the US dollar.

“We expect our IT coverage universe to register earnings growth of 23 per cent on the back of strong 31 per cent topline growth,” brokerage firm Angel Broking said in a report.

Religare Institutional Research, a part of Religare group, said in another report that IT companies may register an average of 17.8 per cent rise in profitability in October-December quarter of the current fiscal.

Revenue growth

Besides, the revenue growth of these firms is expected around 29.2 per cent in the third quarter, Religare said.

Among others, large software exporters such as Tata Consultancy Services, Infosys and Wipro would report a positive impact of the currency market trends, when they report their earnings for the September-December quarter.

Profitability of companies like TCS, Infosys and Wipro is expected to rebound by a healthy 25.1 per cent, 23.4 per cent and 12.8 per cent, respectively, resulting in combined average profit after tax growth of 21.6 per cent.

Sales growth

In addition, sales growth for these top three IT service providers in year-on-year terms is expected to be about 31.3 per cent.

Echoing a similar view, Wellindia Group said that growth would continue for major big IT companies such as TCS, Infosys and Wipro. In addition, Tier-II companies are expected to register strong earnings growth and the earnings for mid-tier IT companies are likely to be a mixed bag.

“...But pressure would continue on mid-cap IT companies like Patni, Persistent Systems, Mphasis etc,” said Mr Vivek K. Negi Head (Research and Training) at Wellindia Group.

Steady performance

He further said: “With the revival in the US economy, major IT companies in India would show steady performance in terms of topline. But weak rupee would add to the bottomline of these companies.”

The rupee has fallen more than 8 per cent against the US dollar in the third quarter to close at 53.10/11 on December 30, and this is expected to result in a margin boost to the extent of 200 to 300 basis points. Besides, demand for IT solutions also remains better than expected, leading to modest volume growth.

The report said that employee cost would put pressure on the bottomline of the companies.

“We can expect increase in business from Africa, Asia and Australia whereas, there would be significant decline in the orders from Europe and the US,” Mr Negi added.

Topline growth momentum

Overall, Sensex companies are expected to maintain healthy topline growth momentum, with projected growth of 18.5 per cent year-on-year in sales. However, growth is likely to be slower than the 23 per cent increase witnessed in the second quarter of the current fiscal.

On the bottomline front, margin woes are likely to continue, leading to 7.7 per cent year-on-year earnings growth.

Published on January 10, 2012
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