Date:07/12/2007 URL: http://www.thehindubusinessline.com/2007/12/07/stories/2007120756781100.htm

Back Services cos turning to Europe for higher revenue

Fallout of appreciating rupee and a possible slowdown in US economy

With the rupee appreciating far quicker against the dollar than against the pound or the euro, IT companies find it profitable to get more of their revenues from Europe

K. Bharat Kumar

Chennai, Dec. 6

The appreciating rupee and a possible slowdown in the US economy are making Indian IT services companies look Europe-wards.

The industry did begin to focus on Europe after IT spending in the US slowed down in 2000, but soon re-shifted focus to the US once spending picked up.

Europe has for long been seen lagging behind the US in terms of quick decision-making. Also, industry captains have held the view that long-term maintenance contracts were easier to get from the US than from the older continent where resistance to offshoring is higher.

But all that seems to be changing now. Now, with the rupee appreciating far quicker against the dollar than against the pound or the euro, Indian IT companies find it profitable to get more of their revenues from Europe.

Attractive region

In some instances, as in the case of Satyam Computer Services, the Asia-Pacific, particularly Australia, is turning out attractive as well, as revealed by Mr Ram Mayanpati, Director on the board of Satyam, in a recent conference call with analysts.

The table alongside shows that all five companies in the list have shown an increased revenue contribution from Europe between the September quarters ended 2006 and 2007.

Sharpest fall

Among the five, HCL Technologies and Satyam saw the sharpest declines in US contribution to total revenues while the other regions perked up.

Says Mr Anil Chanana, CFO, HCL Tech: “With a view to reduce the dependency on dollar (revenues), the company has been (trying) to increase its revenue share in European markets. The revenue from Europe has grown 54 per cent YoY basis compared to the overall revenue growth of 43 per cent.”

Biggest jump

Cognizant, which reports revenues in US dollars, saw the biggest jump in terms of revenue contribution from Europe: a clear four percentage points to reach 17 per cent for the September 2007 quarter. Its European revenues increased 24 per cent sequentially and 92 per cent year-on-year.

Mr Francisco D’Souza, CEO, Cognizant, said: “Over the past several quarters, we have been expanding our geographic footprint in Europe as European companies have continued to aggressively adopt offshore strategies. More recently, we have focused our investments in Europe on building out our service offering capabilities in areas such as BPO, ERP, Testing, Infrastructure Management and CRM.”

In the UK, Cognizant has seen significant growth in Testing Services, especially in the banking and financial services segment, Mr D’Souza said.

TCS, which has significant operations in South America, or what it classifies at the Ibero Amercia region, has seen revenue contribution from there go up from 3.5 per cent to 4.1 per cent while US contribution fell more than a percentage point to 52.2 per cent.

Its revenues from Continental Europe (distinct from the UK) contributed 8.4 per cent most recently compared with 7.8 per cent a year ago. Its Asia-Pacific figures stand at 5.2 per cent (4.6 per cent).

Mr Shailesh Shah, chief strategy officer, Satyam, told Business Line that the US is still a major contributor for revenues and that US revenues typically grew slower, but on a larger base.

He also said: “We are now increasingly serving our US based customers in other parts of the world. We are nurturing the relationship developed in the US to capitalise on opportunities in the rest of the world.”