The $60-billion plus Indian IT industry reported its first quarter results ended June amidst a deteriorating global economic climate.

American job creation data for June remained weak at just 18,000 new jobs while Europe?s debt crisis now risks spilling over to the much larger economies of Italy and Spain after affecting the peripheral countries of Greece, Ireland and Portugal. International Monetary Fund (IMF) warned that a deepening crisis would create major global consequences.

While none of these developments appear to have impacted the export-heavy IT industry yet, executives from top companies signaled the beginning of yet another difficult period. Technology budgets, drawn up by customers in January this year, have not been revised but the sales cycle in certain sectors are getting longer, particularly in investment banking. Some Wall Street banks, key clients for Indian firms, reported big declines in fixed income trading during the June quarter.

Wipro?s CEO of IT business TK Kurien summed up the operating environment aptly: ?The secular bull run for the industry is over. You are going to see growth in some parts of the world and recessions in others. You have to manage it by thinking long-term and not short-term.?

Long-term thinking of Indian IT services biggies hinges on growing newer technologies such as cloud computing and newer services lines such as consulting and business analytics. Infosys, India?s second largest software services firm and Wipro, the third largest, underwent organisation-wide restructuring during the quarter to respond better and faster to the changing needs of customers.

The reorganisation distracted the management of the two companies, helping larger rival TCS to increase its revenue lead. TCS also bridged the lead Infosys traditionally held in margins, provoking some analysts to say that the industry now had a new bellwether. Nevertheless, both Infosys and Wipro are likely to bounce back in a couple of quarters, if their recent signings of big deals are any indication?the gestation period for any new deal could be between 3-6 months. Encouragingly, even mid-tier firms such as MindTree have reported good momentum in IT services.

TCS, which was the least apprehensive about the macro economic environment of the top three firms, reported volume growth far ahead of its nearest rivals. The IT firm?s top line growth indicated a robust demand environment during the June quarter. Dollar revenues for the firm grew 34.4% over the year ago to $2.41 billion and 7.4% sequentially, beating Street estimates. In rupee terms, revenues jumped more than 30% to R10,797 crore, driven by strong volume growth of over 7.4% and broad-based performance across verticals. Even as higher wages pressurised the firm?s bottom line, it was able to match Infosys? margins of 26% during the quarter. Analysts said the firm benefited from an outperformance in volume growth over the past many quarters. On an average, Infosys grew it volumes 3.2% in the last four quarters compared to TCS whose volumes grew at a whopping 7% in the last four quarters to March this year.

TCS

For the first quarter ended June, TCS posted strong numbers, outperforming Street expectations. The IT major reported a 27% jump in its net profit at R2,415 crore compared to the year-ago period, however, profit declined 8% sequentially. In rupee terms revenue grew by 31.4% to R10,797 crore driven by strong volume growth of over 7.4% and good performance across verticals.

Shashi Bhusan of brokerage house Prabhudas Lilladher said, ?We believe that the volume growth has peaked but the momentum is likely to be at high single digit in near term. The management is confident of maintaining high utilisation. However, we believe that the company needs to bring utilisation down to deliver sustained high single digit volume growth in FY12. FY11 growth was more predictable, helping them to operate at high utilisation. We believe that onsite would increase as growth would come from new clients, hence impacting margin in line with our hypothesis.? EBITDA and EBIT margin declined by 233 basis points (bp) and 214 bp qoq, respectively, due to wage hikes doled out during the quarter. For TCS wage hikes were effective from April 1.

During the quarter, TCS closed 10 large deals, of which six were from the US, two from Europe and the UK and the rest from emerging economies. The company highlighted that the demand environment is upbeat and it is chasing 15 large broad-based deals spanning across industry segments?five in BFSI and two each in telecom, manufacturing, utilities, travel, and media and entertainment.

?The company maintained its robust hiring guidance of 60,000 gross additions for FY12 and expects a like-to-like pricing increase in the far end of FY12. Even with such aggressive hiring plans, management targets to maintain the utilisation levels excluding trainees at 82?84% in FY12,? noted Angel Broking.

TCS? anchor industry vertical, BFSI, continued to have incremental revenue during the quarter and reported 5.8% qoq growth. The company?s growth was led by hi-tech, telecom and retail and distribution industry segments, which grew by 15.4%, 14.3% and 11.3% qoq, respectively. Verticals like manufacturing, life sciences and healthcare, media and entertainment, and transportation grew by 8.9%, 5.4%, 2.8% and 2.0% qoq, respectively. However, the energy and utilities segment?s revenue declined by 11.2% qoq.

Geography wise, growth was led by emerging markets such as India, Middle East and Africa (MEA) and Asia Pacific, which grew by 13.6%, 18.2% and 9.0% qoq. Continental Europe and UK reported growth of 7.5% and 6.1%, respectively. The IT major indicated that the traction in Europe is increasing with deals majorly coming in for BFSI and retail industry segments.

Infosys

Infosys posted a 15.7% rise in consolidated net profit during the first quarter of this financial year, on the back of a surge in outsourcing demand, compared to the same period last year. Sequentially, however, the company?s net profit fell 5.3%, with annual wage hikes impacting the gains during the quarter. Wage hikes (10-12% offshore, 2-3% onsite) impacted margins by almost 300 bps, with EBITDA falling to 29.1%, compared to 31.7% a year ago.

During the April-June period Infosys posted net profit of R1,722 crore, up from R1,488 crore a year ago. In the previous quarter, the company recorded a profit of R1,818 crore.

Revenues during the quarter rose 21% to touch R7,485 crore from R6,198 crore a year earlier. While during the previous quarter the firm had revenues of R7,250 crore.

Infosys CEO and managing director S Gopalakrishnan said the company has re-organised itself to become more domain-focused.

?This will accelerate innovation and make us more responsive to clients? needs. We believe that Infosys is well positioned to be a transformational partner for large clients even as they navigate through uncertain times,? he said. The company noted that currency impact on margins stood at 0.4% for the quarter. For FY12, Infosys expects a 2.5% margin decline, which earlier they had guided a 3% fall.

According to analysts, the real low point was the 3.5-5% growth guidance for the next quarter, which markets had expected to be higher based on past seasonal trends. ?The company?s performance was modest with 4.0% qoq volume growth.

The disappointment came from lower-than-expected 2QFY12 guidance of 3.5?5.0% qoq growth in dollar revenue, which is seasonally the strongest quarter,? said Angel Broking.

Vertical wise business operations (contributed 60% to revenue) grew by 4.3% qoq, majorly led by 7.2% qoq growth in testing services. Revenue from BPO stood almost flat qoq, with merely 0.6% qoq growth. Consulting and system integration (contributed 31.7% to revenue) grew by 4.0% qoq, majorly led by 7.7% qoq growth in revenue from system integration. Revenue from consulting and package implementation grew by 3.5% qoq. The major growth driver for the company was products, platforms and solutions (contributed 8.3% to revenue), which grew by 5.6% qoq, led by whopping 39.1% qoq growth in revenue from product engineering services. During the quarter, the company signed five platform deals in this segment.

In terms of geographies, revenue from north America and rest of the market grew by 5.1% and 2.4% qoq in constant currency terms. However, revenue from Europe declined by 2.6% qoq due to client-specific issues in this geography, mainly in the telecom industry.

Wipro

The country?s third-largest IT company Wipro, which is still on shaky ground following corporate restructuring in its IT business last fiscal, showed a marginal increment of 1.2% in net profit, up to R1334.9 crore compared to R1318.6 crore. Revenue during the quarter rose 18% to R8,564 crore. Revenue from the IT services business grew 16% to R6, 405 crore, IT product sales rose 21% to R1,006 crore, while the consumer care and lighting business was up 18% to R755 crore. Operating margins for IT services came down to 22%, compared to 24.7%. Volume growth of the IT services segment came in tepid at 1.8% qoq.

?Enterprises are variabalising their IT to position themselves better for winning in the world of constraints. We are building assets that allow consumerisation of enterprise technology and performance analytics, two trends that will help us differentiate,? said Kurien. EBIT margin for IT services declined marginally by 10 bp qoq to 22.0% due to impact of wage hikes given from June 1, 2011. However, the negative impact of the wage hike was majorly overshadowed by higher rupee realisation by the company.

However, EBIT margin of the IT products business, which was witnessing a downfall since the last two quarters, improved by 56 bp qoq to 4.2%. ?On a consolidated level, EBITDA and EBIT margins declined by 37 bp and 35 bp qoq to 20.2% and 17.5%, respectively, due to higher growth in the IT products segment, which is a low-margin business,? noted Angel Broking.

According to Kotak Securities, the company?s guidance of 0-2% qoq organic revenue growth for the next quarter was a disappointment.

Margins were likely to moderate further in the second quarter after full impact of salary hikes and the stake acquisition of Science Applications International which happened in April this year.

Wipro witnessed moderate growth across its services including technology infrastructure services (contributed 21.7% to revenue), analytics and information management (contributed 6.4% to revenue), product engineering and mobility (contributed 8.3% to revenue) and consulting (contributed 3.1% to revenue) reported 0.9%, 7.6%, 1.6% and 0.2% qoq growth, respectively.

Business application services (contributed 30.4% to revenue) also grew by 2.7% qoq.

Industry wise, Wipro?s growth was led by energy and utilities (contributed 11.6% to revenue), which reported 12.0% qoq growth in costant currency terms. The company reported a decline in revenue from all geographies, except Europe and APAC. Revenue from Japan took a major hit, declining by 25.4% qoq, revenue from America and India and Middle East businesses also declined by 1.3% and 0.9% qoq, respectively.

MindTree

Mid-tier IT services company MindTree posted a 117% rise in consolidated net profit to R34.5 crore during the first quarter compared to R15.9 crore in the same period last year backed by growth in the IT services business and lower operating margins. The IT firm, which went through a management change earlier this year, recorded a 18.4% rise in consolidated revenue to R413 crore compared with R348.7 crore, a year ago. Its EBITDA remained flat at 11.2% despite the impact from wage revision for employees and rupee appreciation.

?Our increased focus on operational efficiency and the revenue momentum has helped us offset the impact of the wage revisions during the quarter and enabled us to largely maintain the same EBITDA as the previous quarter. We are confident that these efforts will help us improve margins further in the coming quarters.? said Krishnakumar Natarajan, CEO and managing director, MindTree. The company?s IT services business grew 41.8% year on year and 10.7% sequentially, while the product engineering services showed 1.7% qoq growth.

?Momentum in both our businesses is expected to continue and we are confident of delivering higher than industry average growth in FY12,? he said.

Hiring, hikes, attrition The hiring spree in TCS continued, with a net addition of 2,542 employees during the quarter, compared to 2,320 a year ago. The company?s subsidiaries added 1,034 employees compared to 951 last year. Attrition at TCS was the lowest amongst the top three, at 13.6% for the quarter, but higher compared to 12.3% in the corresponding quarter last fiscal, and 13.1% in the previous quarter. Closing head count (consolidated, including subsidiaries) was at 2,02,190.

Infosys exceeded its guided recruitment number of 6,500 for the first quarter ended June, with gross hiring close to 10,000 for the period, in anticipation of business growth going forward. The company, which has a workforce of 1,33,560 employees, did not revise annual recruitment guidance of 45,000, as these high recruitment numbers were expected to even out through the following quarters. Attrition during the quarter was 15.8%, owing to a high number of employees leaving for higher studies, increased lateral hiring within the sector, and demand from other industries.

For Wipro, net employee addition was 4,105 during the quarter, lower in comparison to 4,854 a year ago.

Attrition levels rose to 23.2% during the first quarter compared to 20.9% in the preceding quarter.

Wipro offered a 12-15% wage hike during the quarter, with 3-4% for onsite employees. As of June 30, the IT services segment of the Bangalore-headquartered company had 1,26,490 employees.