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India IT Cos Expect Strong 2Q; Higher Infosys Guidance
Wednesday October 8, 1:29 am ET
By Uday Khandeparkar, Of DOW JONES NEWSWIRES
MUMBAI (Dow Jones) -- Indian software firms expect strong second quarter results on the back of increased sales, with industry major Infosys Technologies Ltd. (NasdaqNM:INFY - News) likely raising again its earnings guidance for the full year.
Infosys, the most-tracked company in the sector, raised in July its forecast earnings for the fiscal year ending March 2004 to 168.50 rupees ($1=INR45.33) per share from INR161-INR163 previously.
Analysts expect the company to raise its guidance to INR172-INR174 per share, which is impressive considering that profit margins of software firms remain under pressure.
With most of their business coming from exports and the rupee strengthening sharply in the last few months - it has risen 5.8% against the dollar since January - the profit margins of software firms have been under pressure.
But a sharp jump in revenue will more than offset the foreign exchange impact.
Indian software companies will start announcing their fiscal second quarter results this week.
A Dow Jones poll of four brokerages predicted Infosys, whose results are due Friday, will report a 29% on year rise in second quarter revenue to INR11.55 billion. Net profit is estimated to rise 28% on year to INR2.89 billion.
Analysts said the increased flow of orders to Indian IT firms is the result of an expected global economic recovery. Furthermore, sending work offshore has now become standard practice among multinational firms. Indian companies are major recipients of offshore orders, especially in the IT sector.
"Growth is led by existing clients off-shoring more to India as well as new clients adopting the offshore route for the first time," Edelweiss Capital's software analysts Ajay Mathrani and Aashish Agarwal said in a report.
Wipro Ltd. (NYSE:WIT - News) which, along with Infosys and the unlisted Tata Consultancy Services, is among India's biggest software companies, will also likely report higher earnings.
According to the poll, Wipro's second quarter revenue will come in 22% higher on year to INR12.98 billion. Unlike its peers, which focus mainly on software services, Wipro's revenue growth will also be the result of increased sales of computer hardware. But net profit is expected to have risen by only 1% on year to INR2.23 billion.
"Wipro's IT services business remains under pressure," said ICICI Securities' analysts Supratim Basu and Dipankar Choudhury in a report.
Part of the reason for the lower profit is the acquisition cost this year of Massachussets-based firm Nervewire Inc for $18.7 million. Wipro has said it expects an operating loss of around INR100 million at Nervewire in the July- Sept. quarter.
But for the rest of the year Wipro's profit outlook looks better amid expectations that it will be the biggest beneficiary of increased spending on software services by telecom firms.
Most of this income will come from maintenance contracts and the development of products for 3G mobile phones.
Satyam Computer Services Ltd. (NYSE:SAY - News) , another big IT player, is expected to report a 15% on year rise in revenue to INR5.82 billion in the second quarter. Net profit likely rose 8% to INR1.28 billion.
-By Uday Khandeparkar; Dow Jones Newswires; 91-22-22884212; Uday.Khandeparkar@ Dowjones.com
-Edited by Costas Paris
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