Delay in decision-making would sting ITindustry in third quarter

Information Technology companies will commence their third quarter financial results with Infosys on January 11 and analysts believe that continued delay in decision making, coupled with slower growth in discretionary spend would impact the revenue growth.

 Hurricane Sandy, that ravaged America in October last year, is also likely to have certain impact on the earnings of the Indian outsourcing companies. These apart, third quarter is generally tougher compared to other quarters owing to lesser work days for holidays in client location.

 “The cross currency volatility impact is expected to be marginally positive but the near 2 per cent quarter-on-quarter appreciation of the rupee on an average will have a negative impact on revenues,” Kotak Securities Analyst Dipen Shah said.

 Shah added that Infosys is expected to see higher revenue growth because of consolidation of Lodestone revenues.

 “While volumes are expected to grow QoQ, we expect realisations to be largely stable, subject to some cases of reductions,” he explained.

 India’s premier IT industry body Nasscom had cut its growth forecast from the range of 11-14 per cent for fiscal ’13 to 11 per cent citing the economic slowdown.

 “Given the current uncertain environment, we expect volume growth of tier I Indian IT companies to scale down to sub-12 per cent in FY ’13. The BFSI industry, from which IT companies derive maximum revenue, is expected to be a laggard in terms of growth,” Angel Broking analyst Ankita Somani said.

 A weak performance from these accounts due to weaker-than-anticipated acceleration implies industry-wide slowdown in IT spending, Somani added.

 Somani also expects volume growth in Q3 to be in the range of 2-3 per cent QoQ for tier-I IT companies, with TCS leading the pack and said that pricing would also remain stable.

 According to IDC, a market research firm, the global IT spending is expected to grow by 6 per cent in 2012 in constant currency, slightly down on last year's pace of 7 per cent growth.

“We expect the EBITDA margin of Infosys to decline by 97 bps QoQ to 28.1 per cent, because of moderate wage hike of 6 per cent to the offshore employee base and 2-3 per cent to the onsite employee base.

The EBITDA margin of HCL Tech is also expected to decline by 179 bps QoQ to 20.4 per cent, due to wage hikes given during the quarter,” Somani added.

An analyst at a foreign brokerage, who didn’t wish to be named, said that the organic volume growth would be highest for TCS. Infosys, on the other hand would see higher revenue growth owing to Lodestone revenue consolidation.

 He added that rupee appreciation will not affect margins much in this quarter as it has appreciated less than 1 per cent recently.