Last week when Infosys opened the third quarter results calendar, bringing much cheer to the market, we in these very columns said that if TCS and Wipro could follow suit, the Indian IT sector would be able to dance on its own two feet. And that?s precisely what has happened. TCS and Wipro have beaten street expectations comfortably and have joined hands with Infosys to proclaim that all?s well with IT-dom.
While pricing pressures have not completely disappeared, they have eased to a considerable extent and the firms have been able to maintain desired margins. The volume demand has picked up, too, reflecting positive sentiments in the market, and the result has been the welcome development of the upward revision in annual and quarterly revenue guidance figures.
Infosys revised, albeit conservatively, its annual revenue growth estimates between 3.6-3.8%, upping it from the earlier estimate of 1.2-1.7%. The company now expects its FY10 revenues to be in the range of Rs 22,473 to Rs 22,519 crore.
Similarly, Tata Consultancy Services (TCS) beat market expectations to post a 33.9% jump in its net profit at Rs 1,824 crore for the quarter. Its revenue, too, jumped 5.1% on strong volumes of 6.6% to touch Rs 7,649 crore year-on-year. And on Wednesday, Wipro posted a stronger-than-expected 21% rise in third-quarter net profit, as net profit rose to Rs 1,217 crore from Rs 1,004 crore. Shares of the company in BSE rose to its highest price?Rs 753 per share? since 2000, indicating by how much the environment has turned around.
The results support the view that the IT industry is on its way to recovery after being ravaged by the global financial crisis last year. Most Indian IT players had relied heavily upon clients in the banking, financial services and insurance (BFSI) space, which was the most badly affected during the crisis. Now that the dark clouds have started to move from above the BFSI space, the Indian software sector has also started to feel a little more comfortable. In fact, it would be fair to say that not even hardcore optimists would have predicted such a fast recovery in the sector.
But it?s always prudent to take stock and learn from one?s mistakes. After all, lightning can strike at the same place twice. Analysts are now of the view that IT firms should look to derisk their business model by evening out their geographic revenue mix. Even today they rely too heavily on the US, which contributes nearly 60% of their income. Time has come for them to look at Europe as a more able ally. Infosys has been looking to arrive at a revenue mix of 40:40:20 (North America, Europe and the rest) for some time but has still not achieved it. Similarly, TCS and Wipro, too, could look at a similar derisked model. Also, it would be prudent to rely less on the BFSI space and look to boost revenues from other verticals.
And it?s not just the biggies that have profited. Sonata Software has announced a quarterly profit of Rs 22 crore, IT product firm Subex registered a profit of Rs 41 crore and Mindtree recorded a profit of Rs 54 crore. So greenshoots appear to be spreading everywhere.
As an offshoot, hiring has picked up and there is good news on the pay hikes front, too. Wipro has decided to raise wages for its one lakh plus staff later this quarter after freezing them early last year due to the slowing business momentum. The quantum of the hike has not been decided yet. In Q3, Wipro added 4,855 employees, or about 5%, its biggest pace of staff addition in more than two years.
Infosys Technologies has increased its overall hiring numbers for 2010-11 to 24,000. The company said it would hire 6,000 people on a gross basis, of which 1,500-2,000 will be laterals. TCS will be hiring close to 11,000 in the fourth quarter. Of this, close to 8,300 will come from campuses and 3,000 will be laterals.
So as you can see, there is not much of a difference from what happened in the pre-recession days. Hiring is in full swing, hikes are about to happen, deals are flowing and pricing pressures have eased. All that one is not hearing is some news of a major acquisition. Do not be surprised though, if a big ticket acquisition is announced around the corner. Truly, the dam has broken. Once again.
?dj.hector@expressindia.com