The not so favourable business environment for IT companies is expected to bring about a growth of 6-12% in the third quarter of 2008, feel industry analysts. The top line growth is largely driven by the depreciation of the rupee against the US dollar. However, the cross currency movements of the Euro, British pound and the Australian dollar against the US dollar are expected to impact the Q3 revenues of IT companies, in US dollar terms. This is because the US dollar has appreciated significantly against these currencies. Dollar revenues (core business) are expected to witness a degrowth of 4.5% quarter-on-quarter (growth of just 5.2% y-o-y). Harit Shah, an analyst with Angel Broking, says, ?Almost 25-30% of the revenues of the IT companies are in these currencies. The currency movements will hit the large firms, in US terms. It will also hit some of the mid size firms depending on their exposure.?
During the quarter, the rupee depreciation was to the tune of 14% on a quarterly average basis. However, cross-currency movements countered it, with the Australian dollar collapsing by over 32% against the US dollar, the British pound by 17% and the Euro by 14% (quarterly average). Gaurav Dua, head of research at Sharekhan, says, ?Large IT companies will have a positive impact on the results in rupee terms. The rupee?s depreciation is likely to contribute 10-12% of the top line growth for the front-line IT companies.? Top-line growth is expected to be at 7.5% q-o-q (32.2% y-o-y) for TCS, Infosys, Wipro and Satyam this quarter, led by rupee depreciation.
At the same time, volumes and pricing pressures are expected to keep the margins flat. Anurag Purohit, an analyst with Religare Capital, adds, ?The currency movements will bring an immediate impact on this quarter. But the third quarter results will speak about further volume and pricing impacts. It will be interesting to know how companies will maintain their margins when volumes are negative and pricing is under pressure.? We expect Wipro and Satyam to have zero net additions while TCS and Infosys will have some net additions with a drop in utilisation, he adds.
Losses on account of hedging are also expected to impact growth of IT companies. Some companies are expected to register negative growth as they had hedged their receivables at rates considerably below current levels. Infosys and Satyam are going to benefit from the depreciation in the rupee against the US dollar during the quarter. In case of TCS, the hedge positions of $180 million (at an exchange of rate of (Rs39-41.82) and $ 300 million (at an exchange rate of Rs43.15-46.5) are expected to mature in this quarter. Hence,foreign exchange (forex) losses of over Rs 260 crore are expected during the quarter.