India’s second-largest software exported, Infosys is making big waves in the Indian IT Industry again. The Bangalore based software giant, once considered the poster boy for India’s booming software industry had posted somewhat unimpressive figures for some time. However, it was Infosys who kick-started the earnings season last Friday. Other IT companies Quarterly results soon followed like a domino effect. TCS (Tata Consultancy Services), HCL Tech and Wipro among others posted better-than-expected numbers.
To understand the how these software biggies churn out impressive numbers and continue to draw a wide variety of clientele, it’s important to understand certain key things pertaining to this industry and IT companies Quarterly results that so many Indians are associated with.
Overseas Revenue:
Because a lot of the revenue of these software companies comes from outside India, they bring in a lot of foreign currency. America accounts for over 60% of the total Software services export from India. For this purpose, revenues are reported in both dollar and rupee terms. A steady growth in revenue is important for companies in the sector. Another thing to remember is that with a weak Rupee, these companies bringing in foreign currency, especially the dollar is vital for the economy.
Operating profit:
The net profit takes into account the tax a company pays and income from non-sales related activities, like sale of a building, land lease, etc. It does not reflect the actual gap between the company’s income from its operation and its expenditures. Hence, analysts follow ‘operating profits’. It helps identify if the company’s mainstream operations are run efficiently. A fall in the operating margins number can mean that the company is finding it difficult to sustain profitability margins.
Utilization:
The employees form the core of an IT company. These prized assets are assigned projects and when not needed, are benched. Utilization, as a percentage of the total workforce, reflects how efficiently its employees are used as well as demand for services. A higher rate of utilization would lead to higher bills, which in turn, results in increased revenue. Infosys’ utilization has improved in the September 2013 quarter to 77.8% from 73.3% last year. TCS’ Q2 utilization is higher at 83.4%.
Attrition:
Attrition calculates how many employees have opted to leave the company, and have been replaced. It is basically the gradual reduction and replacement of workforce over the years. A high attrition figure means a company’s inability to retain talent. Infosys leads the way here too, although it won’t be proud of the same. It has seen a lot of top-level exits in the past few months. Unsurprisingly, its attrition rates have continued to rise to 17.3% from 15% than in 2012. This is the highest in two years.
Client additions:
Client additions mean new projects and increased revenue for a company. It also provides ground for the company to reach out and have a bigger impact on the industry as a whole. Infosys and its subsidiaries added 68 clients in the September 2013 quarter, while TCS said it saw 51 new client additions.
Growth guidance:
Guidance is the expected growth in the company’s revenues, and reflects the confidence of the company. In the Indian IT sector, Growth guidance for the financial year has always taken centre-stage, more than its actual results. Infosys used to give guidance for earnings per share and revenue every quarter for the subsequent quarter. However, given the rather rough patch IT went through, it became harder to predict future growth and the company discontinued that practice. It now gives yearly revenue guidance only. Nasscom, the software services industry body, expects Indian IT companies to report 12-14% growth in revenue for 2013-14.
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