With the country?s top two IT services companies, TCS and Infosys, posting ?blockbuster? second quarter results, the Indian IT sector has already set the festive mood ahead of the Diwali celebrations. After battling tough economic environment in the first half of the year when enterprises globally slashed their IT budgets, the Indian IT sector is turning buoyant again. With a healthy surge in outsourcing demand and strong deal pipeline, IT revenues are expected to get a bigger boost in the coming quarters.

Backed by persistent volume growth and improved business mix, Infosys Technologies, the country?s second-largest software exporter posted a double-digit growth, way ahead of Street expectation for the quarter ended September 30. India?s largest IT services exporter TCS did even better recording a 32% jump in its consolidated net profit boosted by strong performance across the board and volume growth of over 11%. It touched $2 billion in revenues for the quarter.

But the biggest disappointment has been Wipro, India?s third largest software services exporter, which missed Street estimates, as margins were hit by currency volatility and salary hikes. However, the company managed to posted a 9.7% rise in quarterly profit and record volume growth of 6.6% driven by way of a higher offshore mix.

For the country?s fourth-largest IT services exporter, HCL Technologies, it was broad based and balanced growth that led to a 3.1% rise in its net profit during the quarter ended September 30, 2010. The company witnessed growth across all its verticals and geographies. But sequentially net profit declined by 1.6% due to wage hikes and additional investments towards HR expenses.

For mid-tier IT company, MindTree, the quarter did not set the right tone. The Bangalore based IT firm?s product business made a loss of $4.5 million in the last six months and the company decided to wind up its ready-to-brand Android-based 3G handsets business, which was sucking up too much cash and eating into its profitability. The product business apart, MindTree?s second-quarter performance signaled an improving business climate. The firm grew volumes by more than 8%, with revenue of Rs 384 crore against Rs 315 crore in the year-ago period.

With enterprises globally thawing IT budgets to prepare for the future, indication is clear?strong volume momentum will be the flavour of the season and double digit volume growth won?t be a surprise for the Indian IT companies, but maintaining the right pace will be a challenge.

Analysts have been largely impressed by the earnings numbers, except of course for Wipro. Rohit Anand, IT analyst with PINC research says that Wipro?s low growth could be attributed to lower gross hiring as compared to Infosys and TCS. Wipro?s volume growth of 6.6%QoQ was lower than Infosys? volume growth of 7.2%QoQ and TCS? phenomenal volume growth of 11%QoQ. I think the reason for low growth is linked to lower gross hiring of Wipro compared to Infosys and TCS. Wipro followed just-in-time hiring policy whereas the demand for IT outsourcing surged in the last two quarters. ?Wipro?s EBIT margin performance is also inferior compared to peers,? he adds.

Infosys

Infosys? volume growth of 7.2% quarter-on-quarter (qoq) was mainly driven by onshore volume growth of a whopping 11.1% qoq, whereas offshore grew a mere 5.5% qoq. ?The onshore ramp up was primarily because of pent up demand in consulting and package implementation services, which typically kicks off onshore,? says an Angel Broking note.

The IT bellwether reported 13.15% rise in consolidated net profit at Rs 1,737 crore compared to Rs 1,535 crore year-on-year and 16.7% growth on a sequential basis, reflecting robust demand.

After several quarters of single-digit growth, Infosys? second quarter revenue grew 12.1% from the previous quarter. The consolidated revenue of the company rose to Rs 6,947 crore against Rs 5,585 crore over the year-ago period. It increased its annual revenue forecast to $5.95-$6 billion, up 26-27%. While EBITDA margins rebounded by 165 basis points qoq to 33.3% on strong utilisation.

The company said operating margins improved during the quarter, while liquidity positions was further strengthened with cash and cash equivalents reaching $3.9 billion. However, the management cautioned that double-digit growth would be tough to achieve in the quarters ahead seeing the challenging economic environment.

Industry-wise, the growth was broad-based for Infosys. Most business verticals showed robust growth during the second quarter. Retail grew a staggering 20% qoq, followed by BFSI, which continues to be the growth driver. BFSI vertical grew 8% sequentially fuelled by more spending towards risk management. Manufacturing grew 6.9% and telecom grew by 3.9%. Geographically, revenue from North America grew by 7.5% sequentially, while Europe was one of the surprises in second quarter?s performance by Infosys. The geography, reeling under macro economic challenges, grew 18.1% sequentially, the highest growth in the company?s geography mix in the second quarter. While the rest of the world grew by 6.8%.

The company won few large deals during the quarter. The business for the quarter was led by a $180 million transformational telecom deal in Europe, the largest deal in the second quarter. An uptick in the manufacturing business in the US and improvement in the BFSI vertical in Australia and India led to large deals also. Infosys won two $200 million deals, nine transformational deals and added 27 new clients during the quarter.

According to analysts, the current pipeline in large and transformational deals, looks stronger for Infosys, as customers are now investing more in technology and outsourcing.

TCS

The country?s largest IT services exporter Tata Consultancy Services posted a 32% jump in consolidated net profit at Rs 2,169.21 crore for the second quarter ended September 30. The company had a double digit growth across all industries with volume shooting up 11.2%. In dollar terms, the TCS reported its highest ever sequential growth of 30.3% in its top line, touching the $200 million mark.

TCS CEO N Chandrasekharan, says ?Given the growth that we have achieved across all industry units, we are very positive about the global demand recovery going forward while being watchful in view of macro environment.? Income from operations rose to Rs 9,286.39 crore during the quarter, up from Rs 7,435.23 crore in the year-ago period. The company?s operating margin were at historic high at 28%, up 167 basis points y-o-y basis.

TCS added 30 new clients during the quarter. All major markets grew in double didgit terms with Europe leading the pack. TCS? North American revenue crossed $1 billion. All emerging markets grew with India and APAC leading the pack. One of Canada?s large financial institutions selected TCS as a strategic partner to globally support IT, BPO and infrastructure services across all lines of business.

S Mahalingam, chief financial officer, TCS, says ?It has been a quarter of strong revenue and margin performance all around.?

Wipro

Bangalore headquartered IT service firm, Wipro, posted a 9.75% rise in its consolidated net profit to Rs 1284.9 crore in the second quarter compared to Rs 1170.7 crore in the same period last year.

Azim Premji, chairman, Wipro, says ?We saw strong momentum in demand as customers tried to catch up with the under-investment in IT in the previous years. We continue to enhance our investments in transformational capabilities, client partners and domain solutions. While the macro-economic environment continues to remain uncertain, there is higher degree of confidence at the micro level.?

For the quarter ended December 31, 2010, the company expects revenues from its IT services business to be in the range of $1,317 million to $1,343 million, a sequential increase of 3.5% to 5.5%.

Net income from sales rose to Rs 7730.5 crore during the September period, up 12% over the same period last fiscal. Operating profit witnessed a growth of 6.8% to Rs 1356.4 crore as compared to Rs 1269.8 crore, a year ago.

Wipro added 29 new clients in its IT services business, which contributed 74% of the total revenue during the second quarter ended September 30.

In the energy and utilities space, Wipro has entered into a multi-year strategic partnership with a major electricity distribution network owner and operator in UK to deliver transformational services.

HCL Technologies

HCL Technologies posted net profit of Rs 331.1 crore, compared to Rs 321.3 crore in the year-ago period. But sequentially net profit declined by 1.6%. However, revenue grew by 21.9% to Rs 3,708 crore during the first quarter from Rs 3,042.5 crore, a year ago. (For HCL July is the beginning of its fiscal year).

HCL?s revenue for Asia Pacific and Europe grew by 20% and 18.4% qoq respectively. Retail grew 13.1% and BFSI grew by 10.4% qoq. ?The pricing improved by 1.2% qoq, onsite: 1.9%, offshore: 0.9%, whereas volume growth was 7.9% largely in line with larger peers. The company added 48 new clients during the quarter,? says a Prabhudas Lilladher note.

During the quarter, HCL won 14 deals from leading global companies.

The deals were across all services lines and vertical including automobiles, travel, transportation and logistics, financial services, healthcare and manufacturing.

MindTree

For MindTree, the losses only increased from the first quarter of the year?from $1.2 million in the first quarter to $3.3 million in the second quarter, shrinking the firm?s margins by more than half from the same period last year. Consolidated operating margins during the September quarter stood at 7%, down from almost 16% in the year-ago period. The company posted net profits of Rs 23.2 crore, down from Rs 50 crore in the second quarter last year.

The management said that margins would see a higher trajectory from now on because of the more profitable services business. The product expertise acquired will be leveraged to deliver services around 4G, in outsourced product development and R&D work. The transition to the services business would be completed by December this year.

?We believe that the conversion of MindTree wireless into a services company is better strategic. But, high restructuring cost limits upside. However, it reduces the uncertainty and risk,? says Prabhudas Lilladher. The IT firm grew volumes by more than 8%, with revenue of Rs 384 crore against Rs 315 crore in the year-ago quarter.

The management highlighted the margin improvement scenario for the second half of FY11 and noted that the firm is seeing a trend towards multi-sourcing, which is likely to benefit mid-tier IT companies.

?We believe that since wage hike is behind them, the company would able to deliver improved margins in H2FY11 and midteen margins for FY12. We expect the growth in product engineering service (PES) and IT services would keep driving the margins and profits,? says a Prabhudas Lilladher note.

Hiring, promotion and salary hike

With the IT sector back on track, companies are aggressively hiring to ready its growth engine. Infosys, which has seen record hiring during the second quarter, has increased its hiring projection for the year, to 40,000 from 36,000 to have the adequate bench strength required to take on the demand uptick.

The country?s largest IT exporter TCS also had a record hiring during the September quarter. It added 19,293 employees during the quarter, the highest ever for the company, taking the total headcount to 1,74,417 at the end of September 30, 2010.

TCS plans to recruit more people in FY11 than projected earlier. It plans to hire over 20,000 employees in the third quarter. Infosys hired 12,000 people during the second quarter and plans to hire another 12,000 during the October-December period. Of the total 40,000 hiring for the year, the IT giant has already hired 22,000 people.

Overseas, Infosys had a lateral hiring of 656 people mainly in North America and Europe during the quarter. Lateral hiring for the quarter was 4,138 compared to 2,942 people sequentially.

Infosys also announced 12,000 promotions with salary hike. Since the last two years, it started promoting its employee twice a year. In April, it promoted 8,000 people and now in has slot for 12,000 promotions.

Software services firm HCL Technologies also made a net addition of 5,661 employees during the quarter, taking the total headcount to 70,218. The company added 8,333 new employees for the quarter, while over the last two quarters it hired over 10,000 people. It gave promotion to 25% of its employees with salary hikes and has scaled up its sales force by 15%.

Wipro also had a net addition of 2,975 employees during the September quarter in its IT services business. As of September 30, 2010, the company has 1,15,900 employees.