IMPACT: INFOTECH

INTERIM BUDGET

• Excise duty for IT hardware has been reduced to 8 per cent
• Abolition of special additional duty
• Exemption for recorded video compact discs (VCDs) and digital video discs (DVDs) from excise duties.

IMPACT
PC sales and exports are expected to soar. Analysts expect prices to drop 8-10 per cent immediately which in turn would propel sales by 35-40 per cent for 2003-04.

At present only 40 per cent of India's national PC demand is met by domestic makers.

The grey market is expected to come under pressure which will in turn help domestic PC manufacturing.

As PC prices drop, volumes are expected to pick up which will help branded products.

The capital expenditure of software and ITES companies is bound to get reduced since hardware costs account for 40-50 per cent of the capital expenditure of these industries.

OUTLOOK
The BSE IT index rose by 41.5 per cent in 2003 on a year on year basis while the jump has been much higher for the BSE Sensex - 74.49 per cent.

The IT industry has also been a later bloomer in the rally and many analysts are of the opinion that the sector still has a lot of upside left.

2002-03 figures released by MAIT (Manufacturers' Association of Information Technology) indicate that growth returned to the domestic computer systems market after a 2-year slump.

The flagship segment of desktop PCs grew 37 per cent YoY in volume and 30 per cent YoY in value terms, compared to a 11 per cent YoY decline in value in the previous year.

These growth trends are expected to continue into 2003-04, driven by several factors like picking up of corporate spending, which constitute 75-80 per cent of the market and increasing sales of PCs and peripherals in Class B and C towns- a story of higher penetration.

Growth of PC sales in Class B&C towns was 63 per cent YoY in 2002-03 compared to an average of 37 per cent for the industry.

Analysts expect a 20-25 per cent growth in the overall market in 2003-04. Increasing PC sales and exports are expected to have a beneficial impact on the balance sheet of infotech players.

Impact - Positive

WIPRO
Wipro witnessed an all round improvement in business and its Infotech division had an impressive performance last year with revenues jumping by 40 per cent sequentially and 60 per cent on a yearly basis.

The recent Government import duty cuts should lead to a reduction in prices of PCs/servers and lead to higher demand for the price conscious Indian consumer.

Analysts expect the overall growth for the hardware vendors to accelerate. Wipro's impressive client wins in the past few quarters indicate strong growth lying ahead in the Mid-East, Asia Pacific and Australia.

Margins for Wipro Infotech are expected to move up in 2003-045 as these clients have higher margins than the Indian clients.

HCL INFOSYSTEMS: The excise cuts favouring top hardware manufacturers is likely to see a spillover effect on the company. HCL Infosystems is likely to ramp up its domestic manufacturing operations.

This, coupled with the rebound in computer-related hardware and service spending as well as the continuing boom in mobile phone demand augurs well for the company.

HCL Infosystems remains number one in the commercial PC segment (75-80 per cent of the market), while in consumer segment, it is second only to HP.

The company is expected to grow at 20-22 per cent in it's PCs/servers business where the market has picked up after sluggishness for two years.

MOSER BAER: The CD manufactururer will gain from the exemption of VCDs and DVDs from excise duties. CD prices could fall by 20 per cent, but there will be a pick-up in demand.

The cut in customs and excise duties is also likely to be beneficial to the company since nearly 80 per cent of its raw materials are imported.

Moser Baer's September quarter results beat expectations with profits at Rs 832m growing 33 per cent sequentially- on the back of a sequential expansion of 315 basis points in its EBIDTA margins.

The company expanded capacity to 1.45 billion units ahead of schedule and now plans to expand to at 1.8 billion units by April 2004, which would help it retain its number 3 position in the world market.