Anshuman Daga
BANGALORE: Top Indian software exporters face at least one more tough quarter
until they can expect some recovery signs in the once high-flying sector,
struggling with softening demand and intense pricing pressure, analysts say.
Stagnant growth in quarter-on-quarter profit and sales reported by leading
companies during October-December came as no big surprise to the market but
cautious comments about near-term prospects disappointed investors.
"The most surprising thing is that the ramp-up from many new customers
who are giving maintenance work is not happening while the ramp-down is
happening at a faster pace from existing clients," Sujit Sahgal, head of
Asian software services at UBS Warburg, Singapore, told Reuters.
In the past quarter, India's software sector bore the brunt of the September
11 attacks in the United States as corporate clients hit the brakes on spending
and projects got cancelled.
The United States accounts for 60 per cent of India's software exports that
topped $6.2 billion in 2000/01 (April-March). India's software association has
cut the nation's export target to 30-35 per cent in 2001/02, down from 55 per
cent in the previous year.
Indian firms, which get the bulk of revenue from low-cost software
maintenance, have raised volumes amid price pressures. "There is no doubt
that the customer is the king and this is a buyer's market," B Ramalinga
Raju, chairman of Satyam Computer Services, India's fourth largest software
exporter, told Reuters.
Despite its top strong brand name, Infosys Technologies, India's
second-largest software exporter, boosted volumes by over three per cent last
quarter after taking a similar hit in prices offered for its services.
Satyam increased volumes by nearly three per cent and prices fell two per
cent. "I would say that besides the demand issue, it's also important to be
cognisant of the fact that new deals are likely being closed at lower price
points," said Anil Tewari, Hong Kong-based analyst at Goldman Sachs.
Sliding profit growth
India's cost-effective software army caters to a wide customer range,
including financial giants and telecoms equipment makers. While price
competitiveness has been its strong point, the slowdown that hit last year has
made it a necessity.
Turmoil triggered by the collapse of a large number of Internet firms and
wrong bets placed by telecoms equipment makers ended a dream run of dizzy annual
profit growth of nearly 100 per cent that top Indian firms reported for about
five years.
In the third quarter, net profit at Infosys crawled up by just two per cent
from the preceding quarter. Wipro, the No. 3 exporter, showed a three per cent
rise. Satyam's profit dropped by 11 per cent.
"The differential growth rate between the technology and other sectors
is not that as high as before," said Samir Arora, head of Asian Emerging
Markets at Alliance Capital, which has about $550 million invested in Indian
markets - about 35 per cent of it in technology stocks.
Infosys' sales rose less than two per cent quarter-on-quarter. Wipro had flat
sales while Satyam's fell about two per cent. Top software firms kept up last
year's trend of adding about 25 clients every quarter, but new clients came at
cut rates.
Most software shares, among the worst-performers in 2001, saw a surge in
prices earlier this month but failed to hold on to the gains. They are still
underperforming the broader market.
Wipro, which warned of a nearly five per cent drop in sales in the current
quarter, said the next financial year continues to be surrounded by uncertainty
while Infosys said there "continues to be fog on the windshield."
Satyam, however, expected software sales to grow by at least 44 per cent in
the full year, up from the earlier 30-33 per cent target, which analysts said
had been conservative. Infosys has retained its 30 per cent sales growth outlook
for the full year.
"In an environment where customers are not giving guidance, it's
difficult to expect these companies to have good visibility as well," said
Goldman Sachs' Tewari. Big software companies, which once hired in advance to
meet growing demand, have now resorted to low-key layoffs, mostly disguised as
performance-based exits. Campus hires are out.
(C) Reuters Limited.