Infy guidance to set tone for IT stocks

Infosys Technologies will kick off the guidance for the information technology sector when it announces its annual results on April 14.

Motilal Oswal Securities expects the March quarter results to be upbeat and the revenue growth for the top five IT companies to be over 35 per cent for the quarter. The net profit growth rate is expected to be over 44 per cent.

Despite expected robust revenue and profits growth by the IT sector in the quarter ended March 2005, IT stocks have seen a mixed run on the bourses between December 31 and April 8, 2005. The BSE IT index remained stable at around 2620 and the BSE Sensex declined by 1.86 per cent.

Infosys Technologies, TCS, Satyam, HCL Technologies, Hexaware and Geometric, Mastek, Tata Infotech and Tata Elxsi outperformed BSE IT index and the BSE Sensex. Wipro, Patni Computers, Mphasis BFL, GTL and Datamatics Technologies have underperformed the IT index and the BSE Sensex.

The basis for robust sales and profits growth in the fourth quarter, according to an analyst with Motilal Oswal, has been the stability of the rupee during the quarter ended March 2005. This would boost sales growth for the sector, which was impacted by the 4.5 per cent appreciation in the rupee vis-à-vis the dollar in the previous quarter.

Wipro is expected to grow the slowest owing to a continued ramp down in its top account, National Grid, and the slowdown in Spectramind owing to its focus on changing its business model.

Satyam Computer's growth would be impacted by lower domestic sales even as exports are expected to accelerate by 7 per cent quarter on quarter.

Infosys Technologies expected to deliver another quarter of robust performance, with revenue growth of 8.9 per cent on quarter on quarter and over 56 per cent year on year. TCS revenue expected to grow 7.8 per cent quarter on quarter and over 36 per cent year on year.

The revenue growth rate for HCL Technologies expected to slower at 5.8 per cent quarter-on-quarter and 35.3 per cent year-on-year.

Industry analysts expect the net profit growth for top IT companies to be around 5.5 per cent quarter-on-quarter and 43 per cent year-on-year. TCS earned Rs 100 crore income (about 12 per cent of pre-tax profit) owing to gains from forex hedging in the previous quarter.

With the rupee remaining stable, an analyst with Motilal Oswal, expects TCS net profit to decline 1.5 per cent quarter-on-quarter. However, year-on-year net profit is likely to be up by over 48 per cent.

Wipro is expected to deliver a 34 per cent rise in net profit during the quarter ended March 2005. Infosys profits are expected to be up over 50 per cent in the March quarter. Satyam Computer and HCL Technologies are expected to show a 40 per cent rise in net profit in the quarter ended March 2005.

The focus, typically, is on the next full year guidance. Both Infosys Technologies and Satyam Computer are expected to forecast 25 per cent earnings growth in FY06. Analyst forecasts indicate strong growth of 34 per cent in sales and net profit for major IT companies in FY06.