It has been a season of surprises, peppered with a few events on expected lines. This earnings season has pointed to TCS and HCL, as two outfits which tackled the not-so-positive macroeconomic environment with gusto. Infosys put in an average show, dare we say expectedly. It surely needs to regain its midas touch, and that?s not beyond the Bangalore-based giant. Wipro slipped further and needs to up its ante quite significantly over the next couple of quarters to thwart Cognizant?s challenge.
The key issue is the environment is not getting any better. There are pricing issues with customers, on the domestic front the rupee is rising and key customers have slashed budgets. Matters could get tighter for IT firms in Q2. In the coming quarter the rupee?s continuing rise?it increased to a three-year high last week?could adversely impact exporters. It has already impacted margins. An increase in the rupee value translates to fewer rupees for every contracted dollar. For TCS the rupee?s appreciation against the dollar and wage inflation adversely impacted its rupee operating profit by 1.7% sequentially in the April-June quarter. For the second quarter, Infosys has stitched in a further 80 basis points negative impact on profit due to rupee appreciation against the dollar.
But there are some interesting battles going on between the top tier Indian software firms, that make for some interesting viewing. Investors may be aware that TCS has been outperforming Infosys for the past several quarters, but this time some have wondered aloud whether Infosys indeed has lost its IT bellwether crown. A few analysts said in hushed tones that TCS has laid claim to that tag. But that?s a quarter too early, we feel. Infosys has under gone some structural changes after the exit of Mohandas Pai, and soon KV Kamath will take over the chairman?s seat. It is difficult to see Infosys not bouncing back.
Infosys? sober performance during the quarter, against the backdrop of a strong global demand for IT outsourcing, surprised many but too many people are unnecessarily trying to ring warning bells here. Infosys continues to exhibit great traction in select verticals. TCS on the other hand reported better than expected earnings with net profit growing 27% to R2,415 crore and gave a bullish outlook for the future. Infosys? net profit grew 16% while also expressing concerns about IT demand.
The fact is that the software sector had turned the corner some six quarters ago. But only TCS has been able to take sufficient advantage of the situation. Rrevenue and profits of TCS grew by 10% and 16% respectively in a compounded fashion, while Infosys could only manage half of those numbers. TCS has also matched for the first time, Infosys? operating margins at 26%. That was a great achievement for TCS considering the lead Infosys always enjoyed on the margin front.
Wipro, on the other hand, turned in some really average numbers. The company has attributed the poor performance to changes in organisational structure. The company reported a marginal 1.23% annual increase and 2.9% sequential decline in net profit to R1,335 crore for April-June quarter. It has also said that it will grow slower than the industry rate of 16-18% during the year. That?s a sad state of affairs. However, Wipro said it may take 2-3 quarters to catch up with the growth rate of rivals like TCS and HCL Technologies on the back of a strong deal pipeline.
HCL Technologies, India?s fourth-largest software services exporter, was the biggest surprise packet recording a 52% rise in net profi, aided by strong growth in IT infrastructure outsourcing and foreign exchange gains. Revenues touched R4,300 crore, a growth of 27.5% over the same period last year, while profits grew to R510.5 crore. These are some great numbers during a dull season. Chief executive Vineet Nayar says a large number of outsourcing deals originally signed a few years are now coming up for renewal. It signed 20 large transformational IT outsourcing deals during the June quarter.
