IT recovery to take a while

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Apr 24, 2009 (The Economic Times - McClatchy-Tribune Information Services via COMTEX) -- IIFOF | Quote | Chart | News | PowerRating -- MUMBAI, India -- The outlook for the country's IT sector remains bleak given the lacklustre performance by its large players during the quarter ended March 31, 2009. While analysts expect pressure on billing rates to continue in line with declining volumes, a recovery in business sentiments appears to be a few quarters away.

"Volumes have fallen in the March quarter and there is no revival signs as of now. The companies have maintained their cautious approach implying that the scenario still remains challenging," said India Infoline IT analyst Rajiv Mehta.

For the March 2009 quarter, the top four IT companies -- TCS, Infosys, Wipro and HCL Technologies -- reported a deceleration in revenues and profits at the aggregate level. Sales dropped marginally by 0.1 percent, while operating profits fell by 2.7 percent compared with the previous quarter. The drop in net profits was even sharper at 4.9 percent, following losses on account of foreign exchange transactions.

"Overall the results of the top four were in line with market expectations, though the outlook has been a little worse than what was expected," said Prabhudas Liladhar IT analyst Apurva Shah. Importantly, Infosys and Wipro have provided guidance for slower growth in the next quarter. Infosys has, in fact, estimated a single-digit revenue growth for FY10, which is in the light of a challenging business environment.

Though TCS does not issue any guidance, the company has admitted that clients have been delaying decisions and some projects may be renegotiated. The company said that they were worried about uncertainties springing up from existing client contracts, rather than deals that have not yet closed.

Companies including TCS and HCL Technologies have also shown more vulnerability to currency fluctuations than others. Both the companies have taken substantial hit in their bottomlines due to mounting forex losses. While TCS expects to cut its losses in the coming quarters, HCL Tech's management thinks that the forex impact would remain for another six to seven quarters.

Wipro was the only one among the top four to report marginal improvements in billing rates in the March quarter from last year's levels. "Wipro does not have a large exposure to capital markets and its performance has been boosted by manufacturing and healthcare. Despite the uncertain business environment, it has improved its pricing by 3-3.5 percent on a year-on-year basis," said Edelweiss Securities IT analyst Viju George.

Mr Mehta of India Infoline feels that Wipro lags behind its peers on the pricing curve. "Wipro's price rise doesn't look sustainable going ahead. Moreover, its organic dollar revenue (excluding that from Citi Technology Services) has dropped by 7 percent, sequentially," he said.

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