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Software boom hasn't quite petered out

BS ICE Bureau

Beating all doomsday sayers, India's top software houses have returned a sizzling performance in the first quarter of the current year (April-June, 2001-02). The Hyderabad-based Satyam Computers on Wednesday reported a 141 per cent growth in net profits, over the same quarter of last year. The Gurgaon-based Hughes Software Systems too beat the street with a 101 per cent net profit growth, while Infosys Technologies announced a 50 per cent bottomline growth on Tuesday.

For a market desensitised by repeated profit warnings and grim year-end outlook, these numbers testify again that the software boom hasn't quite petered out. More importantly, it is becoming obvious that these companies are doing whatever is possible for them to add new businesses and clients, protect (if not increase) billing rates and contain costs. As Satyam said in its press communication, the sector continues to be "cautiously optimistic", which in fact is a good thing because the markets are looking for any signs of performance which are out of the ordinary.

Indeed, these stocks shrugged off the overnight 72-point decline in the Nasdaq to end the day with solid gains on the Bombay Stock Exchange. Infosys Technologies, always the bellwether stock, led the pack with a 7.8 per cent increase in its share price to Rs 3,767.40 (Rs 5 paid up). Satyam Computers gained 3.4 per cent to close at Rs 172.10 (Rs 2 paid up) and Hughes gained 1.3 per cent to close Rs 608.85.

But analysts said more important than the Q1 numbers are the corporate initiatives to beat the slump. That the slowdown is hanging heavy on their minds is obvious, but it is equally becoming obvious that the top league of Indian companies is managing to hold on to billing rates in the face of cut throat competition. An Infosys director has been quoted as saying that if competition is willing to do the services at 50 per cent of Infosys' rates, then the company expects to get at least 95 per cent of its earlier rates. That is where relationships and brands come in.

Wipro chairman Azim Premji had told this newspaper some time back that faced with a limited IT-spend, overseas companies would naturally gravitate towards companies with a strong brand image of delivering quality and on time.

Indeed, Satyam managed to add 27 new customers in the April-June 2001 quarter against 32 clients during the corresponding period of last year. It has been able to consolidate offshore billing rates from $24.69 per hour to $24.75, with the net result that its total income jumped 75 per cent to Rs 4.21 billion as its exports shot up from Rs 2.28 billion to Rs 4.01 billion. Income from domestic sales has gone up from Rs 54.6 million to Rs 111.5 million. Elsewhere, Hughes Software, which specialises in telecom software, reported adding 11 new customers, including DirecTV, General Motors and a further increase in business from Johnson Controls, Lucent and NEC.

But these companies face increasingly tighter operating profit margins as companies don't have the same bargaining power on major domestic heads of expenses as they have with even a tough nut as General Electric. As against revenue growth of 72 per cent, Infosys' total expenses in the quarter ended June 2001 increased 70.7 per cent (over the corresponding quarter of last year), because its salary bill increased 84 per cent. As a consequence its operating profit margins have slipped from 43 per cent in June last year to 41.5 percent in June this year.

Satyam managed to hang on to its operating profit margins at 38.4 per cent and even reported a 14-quarter high net profit margin of 29.5 per cent.

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