TCS, Satyam feel the impact of wage hikes

IT INDUSTRY IN TROUBLE: TCS margin may fall by 250-300 basis points on wage hike impact, say analysts.

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New Delhi: Trideep Bhattacharya, IT Analyst at UBS Securities feels that majority of rupee appreciation is already done for CY07 and feels that risk of the missing guidance is lower for TCS and Satyam. Satyam may meet rupee guidance and revise dollar guidance up whereas TCS margin may fall by 250-300 basis points on wage hike impact.

Excerpts from CNBC-TV18's exclusive interview with Trideep Bhattacharya:

Q: What are you factoring by way of the rupee movement and where might it trade at for the next two quarters?

A: Based on our economist view, we have assumed 9% currency appreciation in FY08 and 3% further appreciation in FY09.

If you look at the EPS estimate for FY09, the valuations are at 19.5 times one-year forward earnings. The rupee is reasonably poised as far as valuations are concerned vis-à-vis the growth rate that is expected from the company. So, we believe that valuations are reasonable.

The worst quarter, which could have been in the form of currency appreciation, wage inflation and visa costs have been taken into the financials.

Come the September quarter, we should see a better revenue growth profile along with an improvement in margins. That would hopefully turn the sentiment of the sector towards positive.

Q: What do you expect now from Wipro, TCS and Satyam?

A: They will also come and report a decline in margins as much as what we have seen in the case of Infosys. The risk in case of TCS and Satyam is bit lower than that of Infosys because Infosys guided last time around at 43.1, whereas Satyam guided at around 42.3 and TCS does not have an outstanding guidance so to speak.

The question of missing the guidance, which seems to be another critical parameter which most investors look at, that risk is lesser in the case of TCS and Satyam. However, the currency appreciation is a fact of life and to that extent they will see margin erosion.

Satyam might actually meet their rupee-term guidance and we expect to see a dollar guidance revision upwards. It also goes true in terms of performance with TCS as well.

We do expect 7-8% dollar term growth performance from TCS and Satyam as well in terms of revenues. Margins might come off in the range of 250-300 bps for TCS because they also have the salary impact. In the case of Satyam, it will be lower because their salary impact comes in the September quarter.