The top line of prime information technology (IT) companies is expected to grow in the range of 5.6-9.3% quarter on quarter (qoq) in Q2-FY2009. The revenue growth would be primarily driven by the depreciation of the rupee against the US Dollar, which is likely to boost the top line growth by 4-4.5% on a sequential basis. In dollar terms, the revenues of these companies are expected to grow in the range of 1.5-5.2% on a sequential basis backed by a moderate volume growth and flat pricing.
On the margin front, Satyam Computer Services’ operating profit margin is expected to decline by 200 basis points sequentially during the quarter on account of the wage hike implemented during the quarter. HCL Technologies and Wipro have also given wage hikes to a part of their work force. Hence, their operating profit margins may decline by 60 to 70 basis points qoq during the quarter. On the other hand, Infosys Technologies and Tata Consultancy Services may exhibit healthy improvement in their margins, as they had already given wage hikes to their employees in the previous quarter. Furthermore, the depreciating rupee is also likely to have a favorable impact on their operating profit margins.
On hedging front, Infosys and Satyam are going to benefit from the depreciation of the rupee during the quarter, as their hedge position were lower at the end of Q1-FY2009. Wipro and HCL had higher hedge position. The forex losses of TCS would be limited on account of higher portion of options in its hedge position.
The US Dollar has appreciated by 8.5% and 8.9% against the Euro and Pound respectively at the end of the quarter. This is likely to have an adverse impact on the financial performance of IT companies under the US GAAP, as IT companies bill 25-30% of their revenues in Pound and Euro. This has led to concerns that some of the frontline IT companies may not meet their Q2-FY2009 revenue guidance in dollar terms and, in fact, may have to revise downwards their full-year FY2009 revenue guidance.
Stock Tips: Infosys, TCS
Source: Sharekhan report
