Moumita Bakshi Chatterjee

New Delhi, Oct. 6 The Street expects the frontline Indian IT companies to post a sequential topline growth ranging between 5.5-9.5 per cent in the second quarter ended September 2008, aided by a sharp depreciation of the rupee against the greenback.

The rupee hit a new five-year low in what is has clearly turned out to be one of the most turbulent quarters for the IT industry, as a deepening financial crisis in the US has either wiped-out some of the largest names on the Wall Street, or seen them being acquired or bailed-out.

According to Angel Broking, the top tier companies are likely to post a “decent” sequential growth in revenues (quarter on quarter growth of 7.6 per cent and year on year growth of 28.9 per cent) but only due to slide of the domestic currency — one of the few tailwinds currently enjoyed by the export-led Indian IT industry. The topline growth, in dollar terms, is seen muted with Angel projecting a 2.6 per cent sequential growth, Citi expecting 3-5 per cent growth, and Sharekhan pegging it at 1.5-5.2 per cent, on the back of a moderate volume growth and flat pricing.

“The rupee is likely to boost the revenue growth by about four per cent, while the volume growth (man-hours of work) would account for 2-5 per cent rise,” said Mr Gaurav Dua, head of research at brokerage firm Sharekhan. IT bellwether Infosys Technologies has given a guidance of Rs 5,229-5,272 crore; and Satyam Computer Services at Rs 2,743-2,769 crore for the just-ended quarter. Wipro’s had said it expects revenue from global IT services business at $1,089 million during the second quarter.

“We expect the top tier IT companies to report subdued bottomline growth to the tune of 2.8 per cent quarter on quarter in the second quarter of FY09, partly on account of forex losses on hedging as IT firms have hedged their receivables at rates considerably below the current exchange rate,” says Mr Harit Shah of Angel Broking.

Analysts expect Infosys and Satyam to benefit from the depreciation of the rupee during the quarter, as their hedge position were lower at the end of Q1 FY09. Wipro and HCL Technologies, however, had higher hedge position. For TCS, forex losses are expected to be limited on account of higher portion of options in its hedge position, says Sharekhan in its earnings preview.

While slide of the rupee against major currencies would have a positive impact on margins, the operating profit margin of companies such as Satyam, HCL Technologies and Wipro could be squeezed on account of the wage hikes doled out either to both offshore and onsite employees (as in case of Satyam) or to a part of the workforce (HCL Technologies and Wipro), say industry observers.

Infosys and TCS may witness a margin expansion as these companies had already given wage hikes in the previous quarter.

More importantly, with the result season just around the corner, investors would keep an eye out for any downward revision in FY09 guidance, changes in hiring targets, pricing scenario, and client spending patterns, given the uncertain business environment.

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