It?s clear that the business environment is improving. That was evident in the results of India?s bigger IT firms for the third quarter ended December 2009. But it?s also true that they have worked hard to cut costs and to make the best use of their people. Top technology firms like Tata Consultancy Services (TCS), Infosys Technologies and Wipro Technologies are now looking to hire once again. But they will continue to try to keep costs in check. Not having compensated their employees as much as they would have liked during the recent global economic downturn, tech majors will want to make it up to them. They shouldn?t have any problem doing so because there are signs of a revival and the industry could see revenues growing at 20-22% in the coming year.
In the December 2009 quarter, TCS and Infosys saw a sequential volume growth of 6.6% and 6.1%, respectively and they were also able to do business at stable prices. Yet, they did rein in costs, and that helped the net profit.
TCS reported an increase in revenues sequentially of 2%, on the back of a volume gain of 6.6%. The profit after tax was up 11% and it was because earnings before interest and tax (Ebit) saw an improvement of 103 basis points sequentially to 27.3%. The company was able to improve utilisation (including trainees) by about 250 basis points.
The company?s numbers were boosted by lower foreign exchange losses. In the nine months up to December 2009, the company reduced its overseas expenses by Rs 438 crore, to Rs 3,388 crore, down 11.5% from Rs 3,826 crore during the same period last year. In the December 2009 quarter alone,TCS saved Rs 143 crore in overseas expenses at Rs 1,184 crore, down 11% from last year. Ajoy Mukherjee, global HR head, TCS, explains: ?We have tried to cut our additional international expenses by asking executives to avoid visiting locations wherever possible. We would continue to do the same going ahead.?
In the December 2009 quarter, Infosys saw its operating margins expand by 100 basis points to 31.5%. The company was able to absorb pressure from salary hikes and the rupee appreciation. While the company made an effort to bring down costs?which helped it add around 160 basis points to the operating margins, another 60 basis points came better employees utilisation. Infosys was also able to negotiate better prices. While that?s good news, industry analysts point that the company may not be able to hold on to its premium pricing. Also, Infosys has indicated that more than half of its clients are yet to finalise their IT budgets for 2010. Morgan Stanley points out that lower-than-expected client budgets could be harmful for revenue growth.
Wipro Technologies reported a volume growth of 4.7%, slightly lower than that reported by TCS. Also, operating profit margins were flat at 22.4%. This was despite the fact that utilisation levels at 84.5% (excluding trainees) were fairly high. Also, Wipro saw prices come off by about 2% sequentially for the offshore business, though prices for the onsite business remained stable. Like its peers, Wipro also managed to bring down it general and administrative expenses by about 13.5%, to Rs 365 crore.
Going ahead, should companies overseas lower their IT budgets, it?s possible technology firms might not clock the kind of volume growth they?re expected to. In that case, cutting costs will be more important than ever.