Resumo de Indian Tech Companies

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How will the big boys of IT perform?

R Ravi of Karvy Stock Broking believes that all IT

companies will have to pay higher taxes and the

effective

tax rate provisioning for the industry, which has
been

hovering between 10-12%, will definitely go to
around

16-

18%.

He adds that for Infosys, he is expecting revenues
to

grow

by 8.8% and its profit at reported level should be

around

7.1%. In case of Wipro, he expects their IT and
ITES

revenues to grow healthy, close to 7% and for TCS,
he

is

expecting the topline to grow by around 8.5%.

Excerpts from CNBC-TV18's exclusive interview with
R

Ravi

of Karvy Stock Broking:

Q: What are you expecting in terms of earnings from
the

big

three- Infosys, Wipro and TCS?

A: For Infosys, I am expecting revenues to grow by
8.8%

and

its profit at reported level should be around 7.1%.
In

case

of Wipro, their IT and ITES revenues will grow
healthy,

close to 7% and the bottomline growth will be flat.
For

TCS, I am expecting the topline to grow around
8.5%.

But

the profits will be growing only 4.8% precisely for
the

same reason of higher tax provisioning.

Q: The Patni Computer Systems announcement says
that

there

are some back taxes that they have to put into
their

accounts in the range of about USD 23-33 million.
Have

you

had a look at that statement that came from them?

A: I have not looked at it but when I built my tax

forecast, I am already providing a much higher tax

provisioning, though most companies have an
effective

tax

rate of around 14-16%. But for FY07, I am building

between

18-19%. So I do not think the shock should be a
severe

one

but nevertheless, I need to speak to the company
and

get

more clarity on that. It is definitely bad news for
the

company.

Q: When you said 18-17%, was it only for Patni or
are

you

building that in for the sector as a whole?

A: For the sector as a whole, even if one looks at
TCS;

for

the last quarter, it has made a provision of 9.6%.
The

pre-

tax, which they factored in for this quarter was
around

14%. So I am not trying to predict lower taxes, I
am

actually expecting taxes to go up. I am building
that

into

the model because anyway, we have to marry a
situation

of

higher taxes provisioning. So all the taxes will be

between

16-18% for most IT companies, the actuals can be
much

lower

or higher, but I am going with the assumption at
this

point

of time.

Q: Because of the tax revenue in the US, do you
think

some

other companies will also have to record a
liability in

the

quarter that just ended, that is the Q1?

TECH SECTOR

-Rupee depreciated against dollar by over 3.2%
since

April

2006

-1% depreciation in rupee to positively impact
EBITDA

margins by 40-60 bps

-80-85% of invoices of leading firms are in dollar

-Forex hedges to restrict the impact

A: I need to look into that particular release, but

definitely my take is that all companies will have
to

pay

higher taxes and an effective tax rate provisioning
for

the

industry, which has been hovering between 10-12%,
will

definitely go to around 16-18%. I am talking of the

average

for the industry. Company specifics will change
because

if

Infosys Technologies is paying around 17-18%
effective

tax

rate, other companies having the same revenue mix
and

the

same cost structure, have a much lower tax
provisioning.

Q: How are you looking at the salary cost going up in
the

companies because we had a lot of reports of more
people

joining, which is good news and also higher salaries on
the

whole?

A: For this quarter, am building an average rate of

inflation of 14%. But there is a wage rebalancing
happening

within the companies. If the additions are going to be
more

lateral then the wage inflations will play out. But if
the

addition is going to be at the entry level, then it is
not

going to make a severe dent. Similarly if you look at
the

onsite, salaries are going up between 3-4%, so that is
also

having a negative impact on the margin. But we have to
see

overall how wages are played out; we cannot look at one

standalone incident and say whether the inflation is
going

up or down. It has to be seen which constituent of the

total employee strength is going up and if the laterals
and

onsite goes up, then definitely that gives a negative

impact to the margins.

Q: What kind of rates do you see these companies
reporting

in the last quarter?

A: I think billing rates will be flat to modestly up,
for

Infosys. I am expecting the billing rates for the
company

to inch up around 0.5% on an overall basis. For TCS, I
do

not get that, but I think that it will be in line with

Infosys. Wipro too should experience a similar kind of
a

billing rate increase. Normally, the billing rates go
up

between 0.2-0.5% at this point of time.

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