IT majors comfortable in dowturn, see revival by end 09

The current economic downturn may not be so tough on the country's top three IT companies – Tata Consultancy Services, Infosys Technologies and Wipro for their balance sheets show the top three are sitting pretty on healthy reserves and surplus to more than tide over the crisis.

The reserves and surplus head in a company's balance sheet covers retained net profits over the years, besides the share issue premium, For companies in the manufacturing sector this reflects the fixed manufacturing assets but for IT companies liquid assets such as cash and equivalents, sundry debtors and loans and advances make up to as much as two-third of the reserves and surplus.

There is also more cause for cheer in what some of the firms in the sector are reportedly seeing the first signs of recovery. The recent multi-million dollar deals by players like TCS, Wipro and HCL Technologies have triggered expectations of a recovery round the corner. According to analysts if the economy does not falter, these companies see a semblance of normalcy by year-end.

According to industry insiders there are deal conversions happening across sectors such as retail, pharma, energy and utilities and travel and hospitality. They say unlike last year when it took longer to close deals of which some even got cancelled this quarter (April-June), things are looking up this time. These deals are in areas such as application management services and business transformation across sectors and are multi-year and fairly large deals.

The April-June quarter is a strong one for the IT industry. With some momentum in the current quarter growth prospects appear to be better than the earlier quarter though this is not expected to exceed single digits, 5-8 per cent. According to industry sources the growth will come from deal renewals and new deals pertaining to optimisation of clients' existing IT infrastructure.

In the Q4 ended 31March, 2009, most Indian IT companies saw their traditional revenue sectors like financial services, manufacturing, retail and telecom decline. However, the health care sector is now looking up and is expected to grow fast in the months to come.

There are also signs of the banking and financial majors loosening their purse strings, but rather than outside parties they prefer to move the work to their captive units. Industry insiders point out that once the economy revives, growth the financial services sector will become the prime diver for growth.

For IT services vendors existing clients drive much of their growth with repeat business accounting for a major chunk of the revenues.

For TCS, the repeat business accounted for 97.1 per cent for fiscal 2009, as against 96.4 per cent for the previous year.