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Big IT companies to maintain profitability
Jan 20,2009 00:00
by
admin
The third quarter of the current fiscal has so far seen surprising results from some of the big and mid-sized IT companies that came out with numb IT COS ers for the quarter. The biggies have adopted cost control measures to maintain their profitability, which was under stress due to pressure on billing rates and lower volumes. Among their mid-size counterparts, some have reported expansion in profitability backed by cost control, while those who could not do so have witnessed margin erosion. The overall scenario is likely to remain gloomy in the next few quarters as companies have hinted at further pressure on billing rates and slowdown in the volume of new businesses. The robust results by Infosys for the December 2008 quarter came on the back of improved operational efficiency. The company reported higher operational efficiency across verticals. The biggest improvement was seen in banking, financial services and insurance (BFSI) verticals wherein operating margin improved by 380 basis points (bps) sequentially. This robust improvement comes at a time when the company is facing turbulence in BFSI space given the global financial turmoil. The retail vertical saw a jump of 240 bps in operating profit. Compared to the previous quarter, Infosys reported a fall of 180 bps in SG&A selling, general, and administration) costs. On Y-o-Y basis, it contracted by 120 bps. This expanded operating margin for the quarter by 200 bps to 35.1% from the previous quarter. Similar to its closest peer Infosys, TCS has adopted the route of cost control to support its profitability at a time when business momentum has slowed down and billing rates are under pressure. Lower SG&A costs expanded operating margin by 54 bps Q-o-Q and by 60 bps Y-o-Y to 24.8%. Further, despite troubles in the US economy, TCS reported a robust 32% Y-o-Y growth in business in the region with 320 bps improvement in operating margin at 33.4%. Growth in the European market was lower at 23.4% and came on 180 bps lower margin of 29.2%. Mastek, a mid-sized IT exporter providing solutions to insurance and government segments, reported contraction in profitability following slower pick-up in its revenue from the European region. NIIT Technologies disappointed investors as the company reported lower growth in top line and bottom line. Sonata Software, on the other hand was the only mid-sized company to see expansion in its net margins. However, sales growth for the company remained muted at 8% on Y-o-Y basis. http://economictimes.indiatimes.com/Big_IT_companies_to_maintain_profitability |