Indian software exporters are expected to post tepid results in the first quarter of the 2018 fiscal as they stare at continued sluggishness in their traditional business, ramp-up issues in new business areas like digital and a strong rupee adding to their margin pressures at a time when companies are in the midst of structural changes.

As TCS kicks off the results season on July 13, analysts expect the software major to post a 2.3 per cent increase in sequential revenue growth and 1.5 per cent in constant currency terms, on the back of growth coming from BFSI sector. However, growth would be tempered by tailwinds in the form of a strengthening rupee.

So far, the rupee has appreciated 3.5 per cent to the dollar. “Operating margins could be impacted by 93 basis points for TCS,” said Rahul Jain, analyst, Emkay. Others agree. Urmil Shah, Analyst, IDBI Capital, pointed out that operating margins for the top IT exporters will be in the range of 60-90 basis points.

However, Bank of America Merrill Lynch (BoFAML) believes that for TCS, margins can contract by 150bps, with wage hike expected to shave off 110 basis points, visa costs another 40 basis points and rupee appreciation, another 80 basis points, though partially offset by better realizations and cost rationalizations.

Infosys, India’s second largest software exporter, which will report its results on July 14, is expected to post 2.2-2.8 per cent sequential growth in dollar terms. “Infosys is well positioned with increasing client adoption for its technology offerings like Nia, its “New and Renew” strategy in the traditional IMS business and increasing investments in digital,” said Sandip Agarwal, Analyst, Edelweiss Securities.

However, BoFAML pointed out that amidst a continuing focus on non-business issues, growth expectations appear low, referring to the Board’s spat with the co-founders on corporate governance issues.

Further, analysts expect Infosys to maintain its guidance of 6.5–8.5 per cent for 2017-18. This is of significance since Infosys has tweaked its revenue guidance in three out of four quarters in the 2017 fiscal. Margins of Infosys, which were at 24.7 per cent, are expected to reduce by 60 basis points due to visa costs and an appreciating Rupee. The company has guided for margins to be in the 23-25 per cent range this year.

Wipro is expected to post weak numbers and analysts expect it to post 0.3 per cent decline in dollar terms and 1.2 per cent revenue decline in constant currency terms. “We estimate margins to contract by 90 basis points due to impact of a month of wage hike, rupee appreciation and visa costs,” said Agarwal.

HCL may buck the trend

Of all the majors, HCL Tech is expected to post the strongest numbers. Dollar growth is expected to come in at 4.2 per cent and 3.3 per cent in constant currency terms.

However, margins will reduce by 50 basis points due to a combination of rupee appreciation and visa costs.

Last month, Nasscom has pegged growth at 7-8 per cent in constant currency, down from 8.6 per cent last year, as companies continue to struggle in their transition efforts. – The Hindu Business Line

 


 

 

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