IT cos Q2 numbers set stage for revival, positive outlook in Q3, Q4

Written by Rachana Khanzode | Mumbai | Updated: Oct 30 2009, 05:52am hrs
The results of the top Indian IT firms during the second quarter have indicated a revival in the sector. The tier I players witnessed a revenue growth of about 3-5% and have indicated a positive outlook for the coming quarters. During the quarter, Tata Consultancy Services (TCS), Infosys Technologies and Wipro Technologies reported better-than-expected results based on volume growth and revival in the banking, financial services and insurance (BFSI) sectors. At the same time, the firms saw the opening up of the US and Europe markets.

Infosys and TCS witnessed Q-o-Q volume growth of 2.3% and 5%, respectively. Importantly, BFSI, which took Indian tech into the downturn, has been the first to revive and companies with high exposure to this sector, namely Cognizant, TCS and Infosys, are expected to grow ahead of the rest.

During the quarter, TCS saw a 29.17% growth in net profit to Rs 1,642 crore compared to Rs 1,271 crore during the corresponding quarter last year. Its revenues grew by 6.93% year-on-year (Y-o-Y) to Rs 7,435 crore from Rs 6,953 crore. Infosys reported a net profit after tax at Rs 1,540 crore, a Y-o-Y growth of 7.5%, while revenues grew 3.1% Y-o-Y to Rs 5,585 crore. Wipro posted a consolidated total income of Rs 7057.4 crore and a net profit of Rs 1,162 crore, a Y-o-Y growth of 6% and 19%, respectively. Though HCL Technologies saw a drop of 10% in its net profit at Rs 320 crore compared with Rs 356 crore a year earlier, this was largely on the back of hedging losses. The companys hedge loss stood at Rs 155 crore in the latest quarter, compared with a gain of Rs 17.4 crore a year earlier. Its revenue rose about 29% to Rs 3,031 crore from Rs 2,352 crore.

Analysts view the sector to continue with the similar growth levels in the coming quarters as well. With improving management commentary from the usually cautious Infosys, optimistic remarks from TCS and a strong guidance from Wipro, it is clear that Indian tier-1 techs are preparing for a banner year in 2010, say Bhavtosh Vajpayee and Nimish Joshi, analysts at research firm CLSA. During the quarter, Infosys revised its guidance to be in the range between Rs 5,429 crore and Rs 5,476 crore, a Y-o-Y growth of 5.4%. Wipro gave a guidance of $1,092 million to $1,113 million, a 2.5-4.5%Q-o-Q revenue growth for Dec-09 quarter.

A Mumbai based analyst said, The third quarter is seasonally a weak one and yet it tends to be positive for the tier-I firms. We expect the BFSI to be strong in the coming quarters and sectors like telecommunications and manufacturing showing signs of stabilisation with flattish growth.

Interestingly, analysts are also betting big on the budgets that are expected to open up in the coming quarters. Anurag Purohit, analyst at Religare Hichens Harrison, said, The budgets for the sector will be decided in the January-Feburary 2010 period and we expect some of the projects that have been on the shelf to open up. Only 30-40% of the discretionary spending has opened up till now, we expect it grow further. According to Purohit, the sector is expected to see a revenue growth of 15-18% by FY11.