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IT's real: Infotech firms defy US downturn

Samata Dhawade

In a year, half of which has been dominated by the downturn in the US economy, Indian information technology companies have actually posted growth rates, which are better than those in the previous three years.

Overall, 91 IT companies, whose annual results are available till date, have reported a rise of 108.4 per cent in net profit at Rs 27.16 billion backed by a strong sales income growth of 57.4 per cent at Rs 115.67 billion.

Analysts said this was expected as Indian IT companies had increased their market penetration and had already built relationships that could not be dented by temporary economic downturns.

The topline growth of 49 companies (whose numbers were available for each of the past four years) has increased from 40.4 per cent in 1998-99 to 41.51 per cent in 1999-2000 and to 43.71 per cent in 2000-2001. Similarly, net profit growth of this sample of 49 companies increased from 87.58 per cent in 1998-99, to 94.47 per cent in 1999-2000 and to 100.53 per cent in 2000-2001.

Even for the full sample of 91 companies, operating profit margins increased from 27.39 per cent in 1999-2000 to 32.28 per cent in 2000-01, while gross profit margins increased to 31.38 per cent from 25.42 per cent in the previous year. Net profit margins increased from 17.98 per cent in 1999-2000 to 23.87 per cent last year.

Analysts said the impressive improvement in profit margins was simply an indicator of the "value of the customer to the vendor", implying that stable relationships outlive temporary downturns in business cycles.

"There is also the fact that not many Indian software companies were exposed to the dot com bubble-related expansion in the US, and therefore, they are reasonably isolated from the bubble burst," an analyst with a FII brokerage said.

This is also evident in Infosys Technologies' financials. The infotech major's turnover from start up companies, which accounted for 17.2 per cent in the first quarter of 2000-2001 slipped to 7 per cent in the last quarter of the fiscal.

"The newer opportunities in banking solutions and healthcare industry were the major boost for the solution provider during the fiscal," says the analyst.

Wipro, a topper in the infotech sector's turnover chart, managed a 121.7 per cent increase in net profit while sales increased by 34.3 per cent. Tata Consultancy Services, an unlisted infotech company, managed a 42 per cent jump in sales income at Rs 30 billion. However, it did not disclose the net profit for the year.

Working with the assumption that TCS managed to retain a net profit margin of 30 per cent, as in the previous two years, its net profit could be in the region of Rs 9 billion, which translates into a growth rate of 45 per cent.

Including the estimated TCS figures, aggregated 92 companies' sales would increase 57 per cent and net profit by 88 per cent in 2000-01.

Only one major company reported a drop in sales income during the year. Sonata Software, with exports accounting for 84 per cent of its income, reported a drop of 28 per cent in sales to Rs 1.25 billion. Yet, net profit increased 42.4 per cent to Rs 330 million during the fiscal.

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