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Mid-cap IT firms' July-September net growth seen muted

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Press Trust of India Mumbai

India's mid-cap IT companies are likely to witness a muted growth in net profit and a squeeze in margins in July-Sept due to wage hikes, lateral hiring and the crisis in Europe.

A handful of them are, however, expected to surprise the market with quantum leap in profit.

A Reuters' poll of 9 brokerages estimates HCL Technologies, Hexaware Technologies and KPIT Cummins to post a rise in net profit on year. Rolta India may see its net staying flat.

However, Patni Computer, MphasiS and Infotech Enterprises are expected to post lower net profit.

"It could be a mixed result. Net profit of companies like Tech Mahindra or those which have a huge exposure to euro, there could be muted growth and their earnings could be impacted," said Preeti Samtani, vice-president - institutional equities, GEPL Capital.

 

She expects just one or two firms to outperform and overall growth to be muted.

"...Our major concerns would be that whether they have hedged their currency positions. If they have a significant amount of mark-to-market losses, this could potentially wipe out the gains that they could derive from the currency depreciation," she said.

The partially convertible rupee has lost 8.8% against the dollar during the September-quarter, its largest quarterly fall since the same period in 2008, Thomson Reuters data showed.

India's $76 billion industry gets more than 90% of its revenue from providing technology services to overseas clients and counts the United States and Europe as its biggest markets.

The exchange rate fluctuation impacts export-driven IT firms' revenues.

Brokerage firm B&K Securities expects EBITDA margins of HCL Technologies to decline 200 basis points on QoQ basis, because of salary hikes of 12-14% for offshore and 2-4% for onsite employees.

"Also, we do not expect HCL Tech to do well in terms of revenues as well as profit due to highest currency hedging in the IT segment," said GEPL Capital's Samtani.

According to B&K Securities, NIIT Technologies is likely to post strong revenue from new deals and consolidation of its latest acquisition, Proyecta Sistemas.

In Aug. 2011, NIIT Technologies acquired Madrid-based IT firm Proyecta Sistemas de Informacion S.A for an undisclosed amount.

Oracle Financial should benefit from revival in product licence sale versus seasonally weak last quarter, it said.

"This quarter, actually, the growth range is around 5-6%. It's not high. In fact, MphasiS, there is nil growth almost," said Srishti Anand, IT & telecom analyst, Angel Broking.

"The Q1 itself was very strong for most of the companies. So the base set was higher," Srishti Anand said, adding cross currency issues were also there.

Almost all the brokerage firms track IT firms on a quarter-on-quarter basis.

Large-cap Infosys, India's No. 2 software services exporter, reported a 9.7% rise in quarterly profits, roughly in line with expectations, as a weak rupee boosted margins.

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First Published: Oct 17 2011 | 11:29 AM IST

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