IT companies look ahead as the deals flow in

IT companies in the $60 billion technology services sector have geared up to announce the results for the first quarter of 2009-10 with the returns of the deal flows coming in, though in smaller sizes of about $25-30 million.

Most of the new deals are involved in 'business transformation outsourcing', where an Indian vendor would work with a client to reshape the processes like payroll, HR administration to bring in efficient business operation and achieve cost savings.

According to a research and advisory firm Booz & Co and investment bank Avendus Advisors, the sales are growing by 10-15 percent for the top six IT companies. Suvojoy Sengupta, a Partner at Booz & Co told Economic Times, "There is a massive scale down from the 40 percent operating margin levels, to which many companies have got used to." He also expected the operating margins at over 20 percent.

TCS has bagged a five-year deal with the Volkswagen Group for its IT infrastructure and a contract from ABB in the U.K. to implement business software. Wipro signed a $34-million contract with Sunoco, U.S.-based marketer of petrochemical products. Infosys has forecasted 11-13 percent increase in rupee terms for the quarter ended June 30 this year.

However, Gartner, an IT-focused research company is of the view that there would be single-digit sales growth quarter-on-quarter for the sector. Partha Iyenagar, Vice-President and Senior Analyst at Gartner said, "We have started getting calls from clients in the U.S. and Europe on how to cut costs by off shoring. There are positive signs. We have already hit the bottom, but we might see a recovery only by late 2009."

Software industry grouping Nasscom has said that it expects single-digit export growth during 2009-10. "In the short term, we might see single-digit sales growth for top tier IT majors. Year-on-year, we might see a flattish sales growth. However, in dollar terms, we might see a dip for some IT companies," said Harit Shah, IT Analyst at Angel Broking.

With a buoyant force of the hope of recovery, several IT companies are spending more to win new contracts and increasing their sales force. "Companies are investing a great deal in sales people and there is an increased focus on incumbency of clients," said KS Ananthanarayan, CFO, Birlasoft.