Mid-tier IT cos' Q3 earnings to be mixed bag
MUMBAI: Mid-tier IT companies are likely to present a mixed bag of earnings in Oct.-Dec. as competition and the rupee's appreciation against the dollar weigh on margins.
A Reuters poll of brokerages estimates profit growth at HCL Technologies , Rolta India Ltd and KPIT Cummins Infosystems Ltd to be in double digits, while that of MphasiS is expected to inch up 3 percent.
However, Patni Computer Systems , Hexaware Technologies , Mindtree and Infotech Enterprises are seen reporting falling profit. Mastek would continue to be in the red, according to one estimate.
Earlier this week, Infosys Technologies sparked concerns about the outlook for India's showpiece outsourcing sector after it missed estimates for profit and future sales growth and warned of sluggish global economic growth, lowering expectations from other IT companies.
"I don't see anybody who will be an outperformer in the mid-cap space," Anand Rathi Securities analyst Naushil Shah said.
However, Shah singled out Hexaware saying it would see margins edge up on a sequential basis due to better containment of selling, general and administrative costs, better utilisation and growing revenue.
The Reuters poll expects Hexaware's revenue to jump 16 percent from a year ago.
"But in general, margins would dip because of the rupee appreciation," Shah added.
The rupee appreciated about 0.55 percent against the dollar during the quarter. In 2010, the currency had gained 4.1 percent.
Indian software companies! , which earn in foreign exchange, hedge some of their currency risk, but a chunk of their costs are in rupees, and therefore currency appreciation tends to squeeze margins.
"On a company-specific basis, Infotech Enterprises and KPIT Cummins are expected to witness strong improvements of 252 bps and 147 bps quarter on quarter, respectively, after recording multi-year low margins in the second quarter," Karvy Stock Broking analyst Harit Shah said in a report, citing higher utilisation and strong volume growth.
Global enterprise IT spending is forecast to reach $2.5 trillion in 2011, up from an expected $2.4 trillion in 2010, according to research firm Gartner.
IDFC Securities' analyst Hitesh Shah said he expects mid-tier IT companies to report a growth of 1 to 11 percent in the December quarter, driven largely by volume growth.
"Obviously, sentiment is good, even for mid-caps," Sushil Financial Services analyst Dhananjay Mishra said. "But even though demand is there, attrition is still a problem."
Attrition rates spiked towards the end of the last financial year as companies loosened IT budgets after the downturn and the resurgence of demand left IT companies scrambling for trained workforce.
However, some believe that attrition is declining and going forward, it should not be as grave a concern as it was.
"The HR issues of 2010 are waning as a new graduating class moves out of training centres to take on formal billing," CLSA analyst Bhavtosh Vajpayee said in a report.
A Reuters poll of brokerages estimates profit growth at HCL Technologies , Rolta India Ltd and KPIT Cummins Infosystems Ltd to be in double digits, while that of MphasiS is expected to inch up 3 percent.
However, Patni Computer Systems , Hexaware Technologies , Mindtree and Infotech Enterprises are seen reporting falling profit. Mastek would continue to be in the red, according to one estimate.
Earlier this week, Infosys Technologies sparked concerns about the outlook for India's showpiece outsourcing sector after it missed estimates for profit and future sales growth and warned of sluggish global economic growth, lowering expectations from other IT companies.
"I don't see anybody who will be an outperformer in the mid-cap space," Anand Rathi Securities analyst Naushil Shah said.
However, Shah singled out Hexaware saying it would see margins edge up on a sequential basis due to better containment of selling, general and administrative costs, better utilisation and growing revenue.
The Reuters poll expects Hexaware's revenue to jump 16 percent from a year ago.
"But in general, margins would dip because of the rupee appreciation," Shah added.
The rupee appreciated about 0.55 percent against the dollar during the quarter. In 2010, the currency had gained 4.1 percent.
Indian software companies! , which earn in foreign exchange, hedge some of their currency risk, but a chunk of their costs are in rupees, and therefore currency appreciation tends to squeeze margins.
"On a company-specific basis, Infotech Enterprises and KPIT Cummins are expected to witness strong improvements of 252 bps and 147 bps quarter on quarter, respectively, after recording multi-year low margins in the second quarter," Karvy Stock Broking analyst Harit Shah said in a report, citing higher utilisation and strong volume growth.
Global enterprise IT spending is forecast to reach $2.5 trillion in 2011, up from an expected $2.4 trillion in 2010, according to research firm Gartner.
IDFC Securities' analyst Hitesh Shah said he expects mid-tier IT companies to report a growth of 1 to 11 percent in the December quarter, driven largely by volume growth.
"Obviously, sentiment is good, even for mid-caps," Sushil Financial Services analyst Dhananjay Mishra said. "But even though demand is there, attrition is still a problem."
Attrition rates spiked towards the end of the last financial year as companies loosened IT budgets after the downturn and the resurgence of demand left IT companies scrambling for trained workforce.
However, some believe that attrition is declining and going forward, it should not be as grave a concern as it was.
"The HR issues of 2010 are waning as a new graduating class moves out of training centres to take on formal billing," CLSA analyst Bhavtosh Vajpayee said in a report.
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