'IT Q4 hot on outsourcing'

By agencies   |   Tuesday, 11 April 2006, 07:00 Hrs
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NEW DELHI: Indian software services companies, thriving on an outsourcing boom, are set to report quarterly profits rose by at least a third even as a slightly stronger rupee and rising wages crimped profit margins.

With more companies in the U.S. and Europe under pressure to cut costs to stay competitive, Indian software services firms are expected to grab a growing share of the outsourcing deals in the months ahead, analysts said.

This would likely boost revenues, but profits may grow at a slower rate as software services firms face rising wage costs in the fast-growing economy, analysts said.

Divya Nagarajan, an analyst at Motilal Oswal Securities, said an estimated $19 billion of outsourcing deals are expected in the next 18 months, including from Citigroup.

"We expect large order inflows to increase as offshoring continues to be accorded greater importance," she said, adding, “More and more such deals will be reported in the next few quarters.”

A surge in hiring to meet rising demand coupled with moves by large players to acquire small to medium firms will also be the main trends in the coming quarters, analysts said.

Infosys Technologies Ltd., India's second-largest software services exporter by earnings, is expected to report net profit for its fiscal fourth-quarter ended March rose to $154 million, up 34.2 percent from the same period last year, a Reuters poll showed.

Mid-sized MphasiS BFL Ltd., which kicks off the earnings parade is projected to post a 48.5 percent rise in net profit to $10.47 million. Last week, MphasiS welcomed a $380 million bid by U.S. Electronic Data Systems Corp. for a majority stake in the Bangalore-based Indian company.

All eyes will be on Infosys, which will also announce a bonus share issue and give its forecast for the new fiscal year on the same day as the results.

Analysts said they expect Nasdaq-listed Infosys to see sales grow 25 percent to 28 percent this year with a 20 percent to 22 percent rise in net profit -- lower than last year's revised forecast of income growth of 33.1 percent to 33.2 percent and earnings-per-share growth of 30.69 percent to 31.27 percent.

Traders are also betting on a one-for-one bonus issue, though some analysts are worried about the earnings dilution and would prefer a higher dividend. The latest bonus plan will be the ninth by Infosys, which has a cash pile of $1 billion.

"Under-performance of Infosys in the run-up to the April annual guidance is nothing new," brokerage CLSA said in a recent report. "This has happened for five successive years now."

Tata Consultancy Services Ltd., the top software exporter, could report quarterly net profit surged 71.3 percent to $0.18 billion - due to a one-time payout of $0.02 billion to employee-linked performance that reduced its profit to $0.10 billion in the year-ago quarter.

Compared with the profit before the exceptional items last year, Tata's latest profit could grow 31.5 percent, analysts said. It reports results on April 17.

TCS, which counts General Electric as one of its largest clients, will also add muscle after it merged with group firm Tata Infotech Ltd. last year.

Satyam Computer Services Ltd., the fourth-largest software services exporter, unveils its results on April 21, when it may also consider a bonus share issue.

Wipro Ltd., the number three software exporter, is set to release results on April 19. In the October-December quarter, Satyam and Wipro exceeded analysts' expectations, while Infosys met forecasts and TCS came in marginally short.

However, the rupee rose nearly 1 percent against the dollar in January-March, a move that could slow revenue growth, compared with a 2.3 percent depreciation in the December quarter that helped boosted sales.

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