The top line of the front-line information technology companies is expected to grow in the range 6.1-11.7% in Q3FY2009. The growth in the top line is expected to be primarily driven by the depreciation in the rupee against the US Dollar. The rupee’s depreciation is likely to contribute 10-12% of the top line growth for the front-line IT companies. In dollar terms, the front-line IT companies may miss the revenue guidance on account of a sharp cross-currency movement and muted volume growth, because of a lower utilisation rate during the quarter. The utilisation rate was lower during the third quarter on account of a weakening demand environment and a lesser number of working days in the quarter.
On the margin front, Infosys Technologies, Tata Consultancy Services and Satyam Computer Services are expected to show an improvement of 50 to 75 basis points in their margin, largely because of the rupee’s depreciation against the dollar. Wipro’s margins, however, may decline by 15–basis-points because of the full quarter impact of the offshore wage hike given in the previous quarter effective from August 2008 and the salary hike given to the BPO staff effective from October 2008. Margins of HCL Technologies may also decline by around 10 basis points on account of the full quarter impact of the lower-margin Liberata Financial Services and Control Point Solutions acquisitions made in the previous quarter and the partial impact of the Axon acquisition.
On the hedging front, Infosys and Satyam are going to benefit from the depreciation in the rupee against the US Dollar during the quarter. In case of TCS, the hedge positions of USD 180 million (at an exchange of rate of Rs 39.00 - 41.82) and USD 300 million (@ Rs 43.15 - 46.5) are expected to mature in this quarter. Given the sharp movement in the cross currency, the focus of the Dalal Street would be on Infosys’ FY2009 dollar term revenue guidance. Infosys is likely to cut the dollar term revenue guidance for FY2009 by 1.0-1.5% (from 13.1-15.2% in previous quarter) on account of the cross-currency impact.
In case of Satyam, after the proposed Satyam-Maytas deal (which was subsequently revoked after great disagreement from investors), the Dalal Street would focus more on the concerns over the corporate governance issue and the possibility of a change in the management rather than the Q3FY2009 results. Hence, the outcome of Satyam’s board meeting on January 10, 2009 is going to be closely watched.
