NEW DELHI: Software companies, led by Infosys Technologies and Tata Consultancy Services, are set to report higher revenues for the December quarter as firms such as British Petroleum increased outsourcing, but a stronger rupee and higher wages could reduce profitability, say analysts. Although profitability may fall, industry may cheer the revival of order flow after more than four quarters of uncertainty on new businesses as companies in the West grappled with recession and credit crisis. Revenues may rise as much as 4% on quarter, some analysts say.

“The macro situation has improved. The order book is better now. Companies might outperform vis-a-vis guidance,’’ said Harit Shah, research analyst at Karvy Stock Broking. The $60-billion Indian IT sector that depends on the US and Europe for most of its revenues, has been facing tough business conditions for more than a year as their clients such as Citigroup and General Electric were cutting costs as the credit crisis reduced demand. But the situation has improved in the past few months with steady flow of orders as developed economies emerged out of recession. But the appreciation of the rupee against the US dollar, would reduce profitability.

“We are seeing stability and an improvement in demand that we had talked about the last quarter,’’ said Suresh Vaswani, joint CEO, AT Wipro Technologies. The rupee’s rise from 49-50 levels in Q2 to 46-47 levels in the third quarter will impact margins. For every 1% strengthening in rupee, margin impact can be up to 50 bps in large companies, analysts said.

The rupee has been one of the best performing currencies in the region in the December quarter as global funds poured money into India expecting a strong economic growth. The quarter saw deals like British Petroleum global vendor consolidation contract worth over $2 billion shared among others by TCS and Infosys. Also, implementation of software packages such as SAP and Oracle which were onsite heavy are now about 60% offshore. IT companies like HCL Technologies have gained from this shift and HCL’s buyout of Axon helped.

The revival of order flow has also brought in higher costs for companies as they paid more wages, in some cases as much as 11% more, to retain talent to execute orders. And companies could not raise the fees they charged for services as they had to compete aggressively for new orders. “There will be a margin impact of about 25 bps due to salary hikes and variable payout,” said Shashi Bhushan, senior research analyst at Prabhudas Lilladher. “Pricing has been muted with a positive bias that is not too bad for this year,”he said.

The revival of businesses may ensure continued order flows, but may not necessarily lead to rising profitability as the currency movements may be adverse. “Margins are not sustainable as the rupee is strengthening,” Bank of America-Merrill Lynch wrote in a report. BoA-ML sees rupee/dollar at 45 at March end and at Rs 43 at end December 2010 and this will have a negative impact on margins in coming quarters.

Wages will climb up even as pricing will be under pressure. Discretionary sales and marketing spends will also move up.

Training Staff still on the agenda of Indian Companies

Indian IT majors may have tightened their belts in various areas to contain costs as a fallout of the global economic slowdown. However, most of them see continuing value when it comes to employee training, even though it skims crores of rupees off their top-lines.

Top tier IT firms — including Tata Consultancy Services (TCS), Infosys Technologies, Wipro and HCL Technologies — have identified the need to train the brains they handpick annually from India’s top engineering colleges and technical institutes as a critical task, even as the industry is seeing a degree of upturn in client demand.

India’s largest IT services provider, TCS, for instance, spends 2 per cent of its revenue every year on training new entrants. Bangalore-headquartered Infosys recently announced the opening of a grand training facility at its Mysore campus. Infosys annually spends over Rs 800 crore on training alone. Wipro spends about 2 per cent of its net sales in providing training to employees.

While Infosys and TCS have, to a certain extent, tried to centralise their training resources, Wipro’s strategy has been of a federal nature to cater to local manpower requirements. Wipro has set up an archipelago of training centres in proximity to its competency centres all over India and overseas.

“Wipro believes in taking learning as close as possible to the learner. Hence, for fresh recruits, training is conducted at the development centres where the employee is to be placed. Training happens primarily at our Talent Transformation Centres in Bangalore, Hyderabad, Pune, Chennai, Kolkata and Kochi,” says Sreekala Ramamurthy, GM (talent transformation), Wipro Technologies. Overseas recruits, she says, are either provided training at the company’s global centres like the Atlanta Development Centre or “...recruits are flown down to our India offices”.

HCL, too, has decentralised its training infrastructure across the globe because its employees are no longer confined to a particular geography or location. According to Anand Pillai, senior V-P and global head (quality, talent transformation & intrapreneurship development), HCL Technologies: “Since learners are spread across the globe, the entire training department is also spread across the world. Our programmes are standardised to cater to global learning challenges and simultaneously manage different cultural nuances and local sensitivities.”

TCS provides an Initial Learning Programme (ILP) at the company’s corporate learning centre in Thiruvananthapuram. “We invest heavily in world-class training for our employees. ILP training is primarily conducted at our corporate learning centre at Thiruvananthapuram for Indian and non-Indian trainees. We replicate our fresher training programme at Guwahati, Bhubaneswar, Coimbatore and Baroda, as well as overseas, to bring scalability to our training model,” says Ajoy Mukherjee, V-P & head (global HR), TCS.

TCS’ new facility, the Peepul Park, is spread over 12 acres of newly acquired land in Technopark. The 3.5-lakh square feet Peepul Park is snazzily designed and also houses a Leadership Development Institute. The ILP Learning Block can accommodate 1,000 employees at a time, a hostel block accommodates 500 people, with a recreation centre and library thrown in. The facility has a capacity of 1,500 people.

The ILP is replicated in overseas geographies for new hires from countries like Australia, China, India, Hungary, Uruguay, the UK and the US. TCS also ensures that it hires people with diverse educational backgrounds and across geographies.

Infosys recently expanded the company’s global training centre, located at its 337-acre Mysore campus, by setting up another dedicated facility (GEC-II) for training. However, Infosys also maintains training infrastructure at all its development centres. The company recently extended the training duration for new recruits (freshers).

“We consider training as an investment in the future. Our investments to enhance our training capabilities are in keeping with future requirements,” justifies S Gopalakrishnan, CEO and MD, Infosys Technologies.