Return on total income of 27 IT firms slides 20.1% in Q1

Mumbai, July 31 | Updated: Aug 1 2005, 05:49am hrs
A study of 27 IT companies, which have declared their first quarter results so far, shows that their aggregate net profit increased by 25.8% to Rs 1,311 crore during April-June 2005.

But the return on total income (sales plus other income) decreased from 20.6% in April-June 2004 to 20.1% in April-June 2005. This has happened probably due to the decrease in net profit of some IT companies like MPhasis BFL, CMC, Zensar Technologies and Polaris Software.

Shahina Mukadam, head of research, IDBI Capital said: The first quarter has seen pressure on margins of IT companies because of a couple of reasons. Firstly most of the IT companies have increased their salary in Q1. Secondly there have been some impact on realisation because of depreciation of dollar and there has been a marginal slowdown in revenue growth. Thirdly the growth in realisation have not been able to match higher cost during first quarter.

On the performance of IT sector, Gaurav Dua, Senior Analyst, Anagram Stock Broking also said: Most of the IT companies gave annual salary hike with effect from April 1. The salary hike has been liberal due to the rising attrition rate. Since employee cost forms 45-70% of the total cost, the margins have come under pressure during the first quarter.

The net profit of MPhasis BFL decreased by 29.5% to Rs 9.02 crore during April-June 2005 from the level of Rs 12.80 crore during April-June 2004. Total income of the company also decreased by 7.7% during the same period. Similarly, net profit of Polaris Software decreased by 57.4% to Rs 7.95 crore from Rs 18.66 crore during April-June 2004. Sales increased by 11.6% to Rs 174.64 crore during April-June 2005. Other income of this company decreased by 85.5% to Rs 2.19 crore during April-June 2005 from Rs 15.08 crore during April-June 2004.

At the aggregate level, the total income of 27 IT companies increased by 29.1% to Rs 6,533 crore during April-June 2005 from the level of Rs 5,059 crore during April-June 2004. This has happened probably due to the significant increase in the total income of some IT companies like Geodesic Information (135.7%), Mastek (125.6%), Aztec Software (67.7%), Nucleus Software (66.8%), Geometric Software (40.5%) and Hexaware (40.1%). TCS could not be considered due to non-availability of its previous figures.

As many as seven IT companies recorded lower net profit during April-June 2005, while nine companies witnessed an increase of 100% or more.

The top five IT companies in respect of PAT to total income ratio during April-June 2005 were Geodesic Information (44.51%), Nucleus Software (32.73%), Virinchi Tech. (32.28%), Goldmines Media (28.82%) and Infosys Techno (26.23%).

Out of 27 IT companies, 13 companies have witnessed a fall in PAT to total income ratio, 14 companies have shown a higher ratio in April-June 2005 compared with April-June 2004.