Strong demand helps tech vendors tide currency, wage pressures
Four of India's largest software service companies have reported strong growth in sales, upwards of 40 per cent except for third-ranked Wipro, reports Pankaj Mishra.india Updated: Jan 17, 2007 23:48 IST
Four of India's largest software service companies have reported strong growth in sales, upwards of 40 per cent except for third-ranked Wipro, in the latest quarter, riding a strong demand for outsourcing from global corporations. So strong is the volume of work headed to India that tech vendors have been able to shrug off currency and wage inflation pressures.
Wipro, the latest to report results for the October-December quarter, said revenues from information technology services and products climbed 35 per cent to Rs 2,876 crore as uncertainty over new business from key telecom clients – that account for 18 per cent of its sales – weighed it down. "Since Alcatel and Lucent have just finished their merger and new product groups have been formed, we have started discussing specific projects," AL Rao, head of Wipro's telecom business said.
Other senior company executives like chief financial officer Suresh Senapathy attributed the slower growth in sales to a call centre business "that is still undergoing transformation". Wipro has been facing integration problems such as management churn and staff attrition since it bought the business process outsourcing business of Spectramind eServices, an acquisition which gave it an entry into call centre services.
Tata Consultancy Services, India's No 1 tech services vendors, became the first Indian software services to clock a billion dollar in quarterly revenues when it reported Rs 4,873 crore in sales in the three months to December. Second-ranked Infosys Technologies rose its quarterly sales to Rs 3,655 crore, a 44.4 per cent jump. Noida-based HCL Technologies, fifth by revenues in Indian tech rankings, had its revenues rising 39 per cent to Rs 1,465 crore in the three months.
Wipro, which suffered a twin blow of increased staff salaries by an average 15 per cent and a rupee that ended 3.6 per cent stronger versus the US dollar in the October-December months, grew its bottomline by 32 per cent. Infosys and TCS paid wage hikes for employees offshore in April when the rupee lost 3.5 per cent against the dollar.
Analysts had expressed concerns on software company results over a 3.6 per cent stronger rupee against the US dollar, the currency most tech clients are billed in, and a rise in salaries for technology workers. "Infosys suffered a Rs 145-crore foreign currency loss over strengthening of the rupee," V Balakrishnan, Infosys' chief financial officer told The Hindustan Times.
Better billing rates, higher staff productivity, reduced expenses running offices, and currency hedging options helped Infosys maintain an operating margin of 32.72 per cent in the October-December months. "The company has hedged $360 million (about Rs 1,602 crore) for the fourth quarter to March," Balakrishnan added. Other companies too reported marginally higher billings rates – as much as 3-5 per cent in new contracts – primarily because demand is strong.
TCS, the largest Indian software exporter, improved its margins despite appreciating rupee by moving more work offshore and reducing sales costs.
The quarter also witnessed some large deals signed by global corporations. HCL bagged a $200 million, five-year contract with Skandia, a UK savings solutions provider, for providing application development, maintenance and remote infrastructure management services. "Indian vendors can expect more $100-$200 million deals in the coming few quarters, as large outsourcers seek to work with multiple offshore vendors and outsource smaller contracts," John McCarthy vice president of research at market analyst Forrester's Cambridge, Massachusetts offices said in a phone interview.
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