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Chennai Rains, Furloughs to Mute IT Revenues in December Quarter: Analysts

Indian IT firms are likely to post muted revenue growth in the December quarter, affected by Chennai floods and more-than-expected furloughs in the US and European markets, analysts said.
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Chennai Rains, Furloughs to Mute IT Revenues in December Quarter: Analysts
New Delhi: Indian IT firms are likely to post muted revenue growth in the December quarter, affected by Chennai floods and more-than-expected furloughs in the US and European markets, analysts said.

The October-December period is usually a weak quarter for Indian IT players as business is impacted by low volume growth on account of Christmas and New Year holidays, and furloughs in the US and Europe. The two markets account for about 85 per cent of their revenues.

"Weak Q3 seasonality for IT Services is compounded this year by higher-than-expected furloughs, cross-currency movement and impact from Chennai floods affecting delivery for five days, and high absenteeism in the following few days," Motilal Oswal said in a report.

Companies like Tata Consultancy Services (TCS), Wipro, Hexaware and Mphasis have already issued warnings that their revenues and margins for the third quarter of 2015-16 would be impacted by lower-than-expected earnings as the downpour in Chennai and coastal areas of Tamil Nadu hit the operations of various IT firms.

TCS, the country's largest software services firm, will kickstart the quarterly earnings season for IT firms from January 12, followed by Infosys (January 14), Wipro (January 18) and HCL Technologies (January 19).

"We expect muted growth... Large-caps are likely to report tepid dollar revenue growth of 0.3-1.1 per cent quarter-on-quarter with Chennai floods exacerbating the seasonal weakness in Q3, particularly for TCS and Wipro," Religare said.

Margins are likely to remain range-bound with the seasonal slowdown offset to an extent by rupee depreciation, it added.

Emkay said Chennai disruption, coupled with cross currency headwinds (40-70 basis points), will add to the usual December seasonality, resulting in a "likely modest" quarter performance.

TCS and Hexaware had said floods in Chennai are expected to have a "material impact" on their quarterly revenues, while Wipro had said it expects to meet the lower half of its guidance range for the third quarter of the current fiscal year.

Wipro had forecast third quarter revenues for IT services to be in the range of $1,841-1,878 million.

Mphasis had said its margins will take a hit of up to 120 basis points.

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