Indian IT Services Getting Ready for a Bumpy Ride

Date:   Wednesday , May 04, 2011

Although investors had something to cheer as the top Indian IT companies have presented a fair performance announcing their quarterly results, the challenges ahead worries the industry. While TCS continued to be the top winner, Infosys and Wipro managed to exhibit a fair show presenting the results of the January-March quarter. The industry had bigger challenges like the Japan earthquake which was a massive blow to the manufacture sector and the middle-east crisis. The Indian IT industry could survive the above global setbacks and of course the in-house troubles like the top level management exits, heavy attrition rates, and rising inflation.

Country’s largest software services exporter Tata Consultancy Services (TCS) continued to outperform and widen its revenue gap with its close rival Infosys and posted a 23 percent rise in quarterly net profit. The company has announced that its fiscal fourth-quarter net profit rose to Rs. 2,402 crore. TCS, the information technology wing of the business conglomerate Tata Group, said it registered a net profit in FY11 at Rs. 9,068 crore which is an increase of 29.5 percent from the year-ago period. Company’s revenue in FY 11 also saw a 24.3 percent jump from the previous year and stood at Rs. 37,325 crore. TCS proposed a final dividend of `8 per share on the face value of Rs. 1.

TCS has survived the rising demand for outsourcing services from western clients as predicted by the Streets. “Demand environment for software services continues to be vibrant. However, headwinds remain in the near term and medium term global macro horizon,” said N Chandrasekaran, Chief Executive of TCS. The IT giant turns its focus mainly on adoption of next generation technologies by investing in new areas like mobility, analytics, social media and sustainability solutions. On the recruitment side, TCS has added 11,700 employees (net) during the January-March quarter taking its total headcount to over 1.98 lakh.

Although said to be a sluggish performance, Infosys clocked nearly 14 percent consolidated net profit at Rs. 1,818 crore for the fourth quarter ended March 31, 2011. Falling short of market expectations, FY11 revenues grew by 20.9 percent. The company posted lower than 10 percent growth in net profit for two consecutive years ended March 2011. Hoping that the demand will remain strong, the country’s second largest IT exporter forecasts a net profit growth of 5-7 percent in FY12. The company has also declared a final dividend of Rs. 20 per share for the fiscal on every share of Rs. 5 held. “We expect the demand environment to be normal this year for the industry. We have created a structure with strong customer driven vertical focus and have enhanced our investment to take advantage of the opportunities we see in the market,” said Infosys CEO and Managing Director Kris Goopalakrishnan.

Infosys announced that the company will recruit 45,000 people in this financial year. “We have said we will recruit 40,000 people this year and ended up recruiting 43,000. Next year (2012), we are looking at recruiting 45,000 people,” he said.

Wipro Technologies scored a consolidated net profit of Rs. 1,375 crore for the fourth quarter ended March 31, 2011, an increase of 14 percent year-on-year. The quarter also saw the consolidated revenues going up 18 percent year-on-year at Rs. 8,302 crore. India’s third largest software exporter posted a net profit of Rs. 1,208.9 crore for the fourth quarter last year. Company’s IT services accounted for $1,400 million revenue, a jump of 4.2 percent and a year-on-year increase of 20.1 percent. “We have made good progress in creating a leaner, simpler and more customer-centric organization structure. We believe our business strategy along with the new structure will deliver industry leading growth,” Wipro Chairman Azim Premji said in a statement.

The firm forecasts its IT services business to bring in revenue in the range of $1,394 million to $1,422 million for the first quarter ending June 30, 2011. Company’s IT services segment added 2,894 people this quarter and 14,314 people during the financial year. “The business environment is positive and we are focusing on growth by directing investments on momentum verticals. We have announced wage hikes effective June 1, 2011, which would have an impact on the operating margins,” Wipro Executive Director and Chief Financial Officer Suresh Senapaty said.

Commenting on its prime focus, T K Kurien, Executive Director and CEO of Wipro’s IT business, said, “Our journey of building the new Wipro is based on the foundation of customer focus, domain and technology leadership directed towards the customer needs and providing enriching career opportunities for our employees.”

The services offered by Indian technology firms are of high demand but intense competition from foreign players like IBM and Accenture, rising wages and the currency fluctuation are posing serious risks to the Indian IT industry. It is to be seen how well the IT giants can beat the negative market forecasts and take business to new levels by adding more customers and revenue.