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Muted Q4 earnings likely for Indian IT cos: analysts

Press Trust of India/New Delhi 06 Jan 13 | 12:10 PM

Slower growth in discretionary spending and delays in decision making of clients may continue to hurt Indian IT companies' revenue growth in the December quarter, analysts today said.

Traditionally, the October-December quarter is a weak quarter for IT companies as the number of working days is lesser compared to other quarters due to the holiday season at the client locations.

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"Volumes for the top 4 companies are expected to rise by 2-3%. While there is a seasonal impact, slower growth in discretionary spends and continued delays in spending decisions have likely continued to impede revenue growth... Hurricane Sandy also had a marginal negative impact," Kotak Securities IT Analyst Dipen Shah said.

The cross currency volatility impact is expected to be marginally positive but the near 2% quarter-on-quarter appreciation of the rupee on an average will have a negative impact on revenues, he added.

The earnings season will be kicked off by Infosys announcing its numbers for October-December quarter on January 11, followed by Tata Consultancy Services (TCS) on January 14 and HCL Technologies on January 17.

According to Angel Broking's Q3 FY2013 result preview, USD revenue of tier-I IT companies is expected to grow moderately by 2.2-3.2% quarter-on-quarter, with TCS leading the pack. For tier-II IT companies, USD revenue growth is expected to be (1.3)-8.4% quarter on quarter.

After almost a year of volatile currency, the third quarter of FY2013 saw some stability in the currency movement, the analysts said.

"On an average basis, the rupee appreciated by about 1.8% q-o-q, which will negatively impact the rupee revenue growth and can trim down the operating margins of IT players by 50-70 basis points q-o-q," it added.

In rupee terms, revenue growth for tier-I IT companies is expected to be in the range of 1-2.2% q-o-q, while for tier-II IT companies it is expected to be at (2.4)-7.6% q-o-q.

Factors including weakening rupee, high production input prices, hike in borrowing costs, and geo-political situation have plagued the IT industry in 2012.

These, along with domestic policy paralysis, prompted software services industry body Nasscom to lower growth forecast for 2012-13 for IT-BPO exports to 11-14% from previous fiscal's target of 16-18% growth.

Infosys and Hexaware have already lowered their FY'13 guidance on back of customer delays and lower decision making impacting project ramp ups.

However, IT analysts remain confident of the sector doing well in the following quarters.

"While the challenges facing global economic growth persist - the Eurozone crisis, weaker US recovery and a slowdown in China - the outlook has at least stabilised," Kotak Securities' Shah said.

S Gopalakrishnan, Executive co-Chairman of Infosys recently said 2013 will be a better year for the USD 100 billion Indian IT industry as economic environment is expected to improve as businesses invest in technology.

Gopalakrishnan had said: "The global economy, I think, has improved specially in the US. China is growing faster. India has also started improving. So except for, may be Europe, rest of the world is trying to improve and it is good for the global economy...2013 will be better than 2012."

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