IT quartet's turnover crosses $10 bn mark

Wipro, Satyam join TCS, Infosys in beating rupee blues.

The total turnover of the top four Indian IT service providers "" Tata Consultancy Services (TCS), Infosys Technologies, Wipro Ltd, and Satyam Computer Services "" crossed the $10 billion mark in financial year 2007, brushing aside fears that wage inflation, rupee appreciation and a perceived US slowdown would clamp the growth of these software firms.

With Wipro and Satyam today announcing their financial year 2007-08 revenues of $3.13 billion (IT business amounting to only around Rs 13,578 crore) and $1.46 billion (consolidated amounting to Rs 6,668 crore) respectively, the total income of these four IT giants stands at around $12 billion (Rs 52,825 crore) "" a jump of slightly over 46 per cent over last year's figure of Rs 37,682 crore.

Even factoring the rupee appreciation and wage inflation, their total income should surpass the $20 billion mark by 2009, assuming an annual growth rate of 30 per cent. 
 

BIG BUCKS FOR BIG FOUR                                                                Revenue in $billion
	2005-06	2006-07	2007-08*	2009-08*
TCS	3.04	4.29	5.69	7.19
Infosys Tech	2.15	3.10	4.02	5.52
Wipro	2.19	3.13	4.52	5.67
Satyam Computer	1.10	1.46	1.90	2.52
Total (4 companies)	8.48	11.98	16.13	20.90
*Analysts and companies estimate rupee @ 43.10

Even the aggregate net profit of the firms increased by 43.5 per cent to touch Rs 12,432 crore (around $3 billion) in fiscal 2007.

However, their net profit margins (as a percentage of the revenue) have risen marginally by 0.54 per cent, averaging 23.53 per cent in fiscal 2007 against 22.99 per cent in financial year 2006-07.

Satyam, which underperformed the other three firms, registered 30 per cent growth in sales and 22.2 per cent in profit in 2006-07.

However, the rising rupee (it recorded a 6 per cent year-on-year increase) and wage inflation (the four companies added 67,352 employees in fiscal 2007 to take the total figure to 265,193 "" a 34 per cent increase) could play spoil sport.

"While the guidance of these companies is robust, the rupee could affect the operating margins by 150 basis points, while wage inflation could pluck around 300 basis points from the margins," says Krupal Maniar, research analyst, Emkay.

For instance, the employee-related costs of the four firms went up 46.12 per cent to touch Rs 28,827 crore "" increasing 222 basis points to account for 54.54 per cent of their total revenues.

The employee cost as a percentage of Wipro's revenue was 49.7 per cent, while it accounted for 63.8 per cent of Satyam's revenues.

Harit Shah, analyst, Angel Broking, corroborates: "We see the rupee volatility as a major factor in the forward growth of these companies. They will have to have structured currency management to maintain these growth rates."

These fears notwithstanding, the analysts note that better pricing, improvement in employee utilisation figures, a move towards more offshoring, and breaking into geographies other than the US could help the IT firms stem the adverse effects.