IT powers on

India's leading infotech firms continue to grow fast, with healthy numbers for the fourth quarter of 2005-06 and the year as a whole. While this has been the case for a decade now, maintaining the growth rates will get tougher every year, as firms get bigger. The top three firms""TCS, Infosys and Wipro""are all in the two billion dollar league and firms like Satyam, HCL and Cognizant have achieved a run rate that puts them in the billion dollar league. TCS has achieved tremendous top line growth of 44 per cent in the last quarter, powered by both organic and inorganic expansion. Wipro Technologies, the global software business of Wipro, is close behind with growth of 41 per cent, and Infosys has achieved a steady 32 per cent growth. In the year as a whole the top three have all notched up top line growth of over 30 per cent""and the uniformity of performance underlines the solidity of the business model. These large software firms, along with the leaders in the business process outsourcing (BPO) segment, will help the software and services industry as a whole achieve its export target of 32 per cent for the year. This indicates that the industry remains on course to achieve the goal of $ 50 billion exports by 2008.

The rapid growth of recent months has been achieved while keeping margins more or less intact. Infosys leads the pack with a net margin of nearly 26 per cent, which has remained consistent throughout the year. TCS follows with a net margin for the year of just over 22 per cent. Wipro Technologies has turned in an operating margin of nearly 25 per cent, respectable in itself but down almost two percentage points on the previous year. Margins for the top companies have fluctuated during the year, depending on the vagaries of the exchange rate. They have also been under serious pressure because of rise in compensation packages for staff. It is to their credit that they have been able to neutralise this by making substantial productivity gains. Prices throughout the year have been described as stable, which means they have not gone up despite it being several years since the pricking of the tech bubble. However, Infosys, usually the price leader, has reported a slight improvement in prices in the last quarter.

Global investors seem to expect the Indian IT leaders to maintain both their growth rates and margins, and have therefore rewarded them with handsome stock market valuations, compared to global leaders whose valuations simply don't compare, for several reasons. It is still early days for IT outsourcing and the Indian firms have demonstrated the scalability of their models. After reaching a headcount of around 50,000 each, they are confidently projecting a net addition of 20,000 or more in the current year. Plus, they have laid out elaborate plans for acquiring consulting capabilities with which they expect to move up the value chain and get better prices. The performance of the medium- size Indian players, in contrast, is uneven but that should not matter as this rapidly maturing industry is going through an extended phase of consolidation, the latest to be acquired being Mphasis. The leading Indian IT firms are clearly ahead of their global competitors, and as yet there are no danger signals visible.