Next two quarters crucial for tier II IT companies

Written by Rachana Khanzode | Pune, Oct 28 | Updated: Oct 29 2008, 08:19am hrs
While the second quarter was all about impact of the depreciating rupee on the margins and lower volume growth for the tier II IT companies, the next two quarters will test their ability to weather the storm.

NIIT Technologies was hit due to a forex loss of Rs 8.5 crore. Rolta India had a foreign exchange revaluation loss on translation of foreign currency convertible bonds (FCCBs) of Rs 61.35 crore pulling down its profit after tax by 27.28 % to Rs 44.64 crore.

Tech Mahindra went negative by 9.76% at Rs 235.5 crore on q-o-q basis from Rs 258.5 crore, before the addition of exceptional tax provision write back of Rs 67.3 crore bailed them out.

Harit Shah, analyst, Angel Broking, said, The outlook for teir II companies remains cautious and in the next 2-3 quarters they might start seeing the lag effect.

A Mumbai-based analyst said that the demand for the IT companies remains weak and project duration for mid caps is usually one and a half to two years.

This quarter results were much to the expectations, but the next two quarterly results will give clarity on the business impact for the FY10, the analyst adds.

Though companies like NIIT Technologies and Zensar Technologies are bullish on the order books, analyst point that there is more concern in terms of ability of the tier II companies to extract payments from the existing clients.

This is because the tier II companies have more of tier II clients based out of UK and US.

Tech Mahindra saw a flat growth in this quarter from its largest client British Telecom. Gaurav Dua, head-research, Sharekhan securities says, Besides having a tough job of getting new contracts the companies have a lot of risk in terms of payment schedules from the existing clients.

At the same time, though some of these companies have indicated pricing pressures, analysts feel that there is a huge scope of under cuttings, as it is getting increasingly difficult to get business in the current scenario.