X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Software: Preview 3QFY05... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Software: Preview 3QFY05...

Jan 5, 2005

The euphoria in the Indian equity markets continues abated and investors now wait for India Inc. to announce results for the third quarter for FY05. Leading the pack will again be the software majors with MphasiS and Infosys announcing their results on January 11 and 12 respectively. While the past couple of quarters have been good for Indian software companies, especially the leading players from the sector, 3QFY05 might see some weakness on the revenue growth and margins front. The third quarter is usually considered to be a period of relatively sedate growth for software companies as it is marked by an elongated festival season on account of Christmas and New Year (as indicated by the managements in the past). However, if one were to see Infosys' performance on sales and profit growth in the past 10 quarters, the picture that emerges indicates otherwise. While we are not pointing to some trend, what we mean to say here is that players like Infosys have proven time and again their ability to reverse the tide. This has been made possible through their strong execution skills, ability to continuously improve their delivery model and forging long-term and fruitful relationships with clients.

Even in recent times, when several large and mid-size players from the industry have struggled to maintain volume growth, companies like Infosys and Wipro and done otherwise. Not only have these companies maintained a strong order flow, they have also witnessed a marginal increases in their billing rates for some projects. And we believe 3QFY05 to be no different. For mid-size companies, however, times are likely to be tough yet again.

A couple of factors, however, are likely to impact profitability of companies across the spectrum, however varying from company to company. One is the appreciation of the rupee vis--vis the US dollar and the second is wage inflation on account of salary hikes announced in the second quarter of FY05. The former is likely to have a greater impact on those companies that have a larger offshore cost base (like MphasiS and HCL Tech) and a greater US dollar denominated revenues (like MphasiS and Geometric). However, larger companies are likely to pare the effect through a strong growth in volumes and improvement in billing rates. Foreign exchange hedges are also likely to help companies pare some effect of the depreciating dollar in the short-term. The second factor i.e., wage inflation, is also likely to impact margins in 3QFY05. Several companies announced salary hikes for onsite employees at the end of 2QFY05, and the effect of the same will start showing from this quarter onwards.

The overall picture

If one were to take a look at the overall picture, while margins are likely to decline across the spectrum, the degree of decline is likely to be lower for large integrated players and higher for mid and small-size players. Bigger players are also likely to outperform on the volume growth side. However, valuations look stretched for most companies, at least for the medium term.


Equitymaster requests your view! Post a comment on "Software: Preview 3QFY05...". Click here!

  

More Views on News

Newgen Software Technologies Ltd. (IPO)

Jan 15, 2018

Should you subscribe to the IPO of Newgen Software Ltd?

Infosys: A Good Operating Performance (Quarterly Results Update - Detailed)

Jan 13, 2018

Operational efficiencies drive a good quarterly performance for Infosys.

TCS: Performance Along Expected Lines (Quarterly Results Update - Detailed)

Jan 12, 2018

TCS delivers a good performance in a challenging environment.

Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

Aug 5, 2017

How to get exclusive insider recommendations from Ankit Shah.

More Views on News

Most Popular

These Dividend Stocks Could Boost Your Returns Better Than You Can Imagine(Profit Hunter)

May 7, 2019

The art of dividend investing is a lot more than investing in companies with high dividend payouts or stocks with high dividend yields...

Limited Upside, Higher Downside(The Honest Truth)

May 6, 2019

The market's irrational reaction may present opportunities for a limited period of time.

3 Indian Stocks Replicating Amazon's Successful Strategy(The 5 Minute Wrapup)

May 10, 2019

The one critical element that has made Amazon a force to reckon with...

A Simple Checklist for Picking Great Dividend Stocks(Profit Hunter)

May 9, 2019

A filtered, neat list of high-dividend stocks with all this dirty work already done for you.

My Top 7 Stocks to Profit from Sensex 100,000(The 5 Minute Wrapup)

May 16, 2019

Tanushree Banerjee explains everything you need to know about the Rebirth of India and Sensex 100,000.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE IT


May 17, 2019 (Close)

S&P BSE IT 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS