Business

Editor: Bruce Meng
9 Oct 2008 02:08:42 GMT

* What: Fiscal Q2 results from India’s top software firms

* When: From Friday, Oct 10

* Growth set to slow sharply on deepening credit crisis

BANGALORE, Oct 8 - India’s top information
technology outsourcers should report quarterly profit rose by
up to a third, helped by a weaker rupee, but the export-driven
industry’s outlook will be dented by the global financial
crisis.

Markets will focus on companies’ comments on the pricing
environment and hiring plans — key demand indicators — amid
concerns the spreading crisis could cripple outsourcing
demand.
Large banks and financial firms from the United States to
Europe and Asia are big clients of Indian IT companies such as
Tata Consultancy <TCS.BO>, Infosys Technologies <INFY.BO>,
Wipro <WIPR.BO> and Satyam Computer <SATY.BO>.

“When firms struggle to survive, outsourcing is less likely
to be an immediate theme,” Edelweiss Securities said in a
report, retaining its “market underperformer” rating for the
sector.

Some outsourcers may cut their dollar revenue forecasts due
to a downturn in the U.S. market, which contributes more than
half their revenue, analysts said. Indian IT firms have also
been expanding in Europe and elsewhere to cut their U.S.
dependence.

But the risk of global recession is a worry for the sector
which was used to a scorching pace of growth.

“The business climate is very challenging for the software
companies,” said Jayesh Shroff, a fund manager with SBI Mutual
Fund. “The turmoil that we are seeing in the market place is
definitely going to curb technology spending.”

CUT IN REVENUE FORECAST

Broker Religare Hichens Harrison expects Infosys to cut its
annual revenue growth forecast in dollars to 17.5-19.5 percent
due to foreign exchange moves and sluggish demand environment.

Nasdaq-listed Infosys <INFY.O>, whose takeover bid for
British consultancy Axon Group <AXO.L> has been upstaged by a
counter offer from a smaller Indian rival, has forecast 2008/09
dollar revenues would rise 19-21 percent.

India’s IT export growth could be slower than its July
forecast of a 21-24 percent rise to about $50 billion in the
year to March, lobby group National Association of Software and
Service Companies said last month.

Top officials from Indian IT firms have said customers were
delaying decisions on new projects in the tough global
environment. German software maker SAP <SAPG.DE> warned this
week its sales had dropped abruptly in the last two weeks of
September as companies curtailed business software spending.

An 8.4 percent drop in the rupee against the dollar in
July-September should support profit margins at Infosys and TCS
by 172 basis points and 78 basis points, respectively, Angel
Broking’s Harit Shah wrote in a report.

Wipro and Satyam should report a drop of 33 bps and 79 bps
respectively in profit margins, as wage hikes in the quarter
counter the impact of a weaker rupee, Shah said.
Shares in Infosys, worth $16 billion, fell 19 percent in
July-September, while TCS shed 23 percent, in line with the
sector index <.BSEIT>, but worse than the main Mumbai index’s
<.BSESN> 4.5 percent fall.

“While we believe that over the long term, offshoring is
likely to remain a mega-trend, in the medium term the
significant headwinds faced by IT companies are unlikely to
subside in a hurry, leading to stock performance being muted,”
Shah said.
NET PROFIT (millions of rupees)
COMPANY MEAN % CHANGE RANGE DATE

Year Qtr
TCS 13,742 10.2 10.5 12,818-14,431
n/a
Infosys 13,990 27.2 7.5 13,571-14,390 Oct
10
Wipro 8,540 5.2 4.9 8,078-9,139 Oct
22
Satyam 5,357 30.9 -2.2 5,051-5,548 Oct
17
MphasiS <MBFL.BO> 892 34.5 12.9 849-928 Oct
16
NET SALES (million rupees)
TCS 68,579 21.6 7.0 67,214-69,720
Infosys 52,878 28.8 8.9 51,938-53,330
Wipro 62,437 32.1 4.7 61,438-62,960
Satyam 28,142 38.5 7.4 27,519-28,591
MphasiS 7,998 32.9 7.8 7,890-8,078

NOTE: Estimates for TCS and Wipro are in U.S. GAAP.
Forecasts for Infosys, Satyam and MphasiS are in Indian GAAP.

Poll contributors - Enam Securities, Citigroup Global
Markets, Sharekhan, UBS, KR Choksey Shares, Kotak Securities,
Emkay Global Financial Services, Motilal Oswal Securities,
Religare Hichens Harrison, Angel Broking, Khandwala Securities,
and Prabhudas Lilladher.
($1=48.6 rupees)