IT firms' Q1 revenue may slide on rupee appreciation: Analysts

Revenues of major IT firms are expected to be hit by up to 7 per cent in rupee terms in the April-June period as appreciation in the Indian currency against the dollar during the quarter would impact negatively the margins compared to the previous quarter, says a report.

"US dollar-revenues should be flat to marginally down quarter-on-quarter, with rupee/USD appreciation leading to rupee revenues being down 5-7 per cent Q/Q," JP Morgan said in its Asia Pacific Equity Research.

Besides, another report said that companies would also go slow on hiring front as they would prefer to make optimum utilisation of the available manpower as the demand situation is still unclear.

"Hiring should continue to be slow - companies continue to focus on utilisation in absence of clear demand trends," global financial services firm Citigroup said in a research note on the IT services and software segment.

The rupee has appreciated by 5.84 per cent against the US dollar in the June quarter over the previous quarter, while on an year-on-year basis, it has depreciated nearly 12 per cent.

According to Citigroup, Infosys is likely to post a degrowth of 6.5 per cent sequentially, while Wipro and TCS are likely to post a decline of 5.3 per cent and 6.2 per cent respectively in revenues in rupee terms.

IT major Infosys would kickstart the quarterly earnings season from July 10 followed by Wipro, HCL Technologies and Tata Consultancy Services.

Brokerage firm Motilal Oswal said in its India strategy report that cross currency movements and the rupee appreciation would counter each other, leading to minimal impact on rupee revenues and EBITDA margins, though reported USD revenues would be positively impacted by 2 per cent.

However, with expected decline in earnings, analysts feel all eyes would be on the company's guidance for the second quarter of FY'10.

"We believe that the key in 1Q FY'10 results is the outlook for 2Q FY'10 and qualitative management commentary on demand. We expect companies to indicate low-to-mid single digit revenue growth in 2QFY10, at the higher end of consensus expectations," JP Morgan said.

Analysts expect IT companies to indicate an improving business environment and more deal closures in the first quarter of 2009-10.

"We have been fundamentally positive on the sector given our view of improving business outlook for offshore players and low consensus expectations," the JP Morgan report said.

During the April-June period, Infosys scrip gained 34.20 per cent to Rs 1,776.90 and Wipro was up 54 per cent at Rs 377.65. HCL Technologies was up 82.51 per cent in the quarter.

"In terms of stock prices, a sharp upmove in last few weeks could mean a near-term breather - we would be buyers in such a correction on a 9-12 month view," the JP Morgan report said.

"We expect Infosys performance to be weaker than TCS or Wipro due to investments in sales and marketing and limited hedging," it said.