Standard and Poor's Financial Services Llc (S&P), has upgraded the debt ratings of Tata Consultancy Services Ltd's (TCS) and Infosys Technologies Ltd's debt ratings on improving outlook for industry demand.
The companies had their long-term corporate credit ratings raised to BBB+, the third-lowest investment grade, from BBB, S&P said in separate statements.
Wipro Ltd, the third-largest Indian software exporter had its outlook on its BBB rating changed to positive from stable, according to S&P.
The company said in a statement:
''We expect the Indian IT service industry to deliver a robust operating performance.''
''We raised the long-term corporate credit rating on TCS to 'BBB+' from 'BBB'.''
''The stable outlook reflects our expectation that TCS will maintain its robust operating performance and modest financial risk profile.''
S&P said the rating upgrade reflected its expectations of the company's strong operating performance which it believed would continue to deliver strong operating cash flows.
"We expect TCS to register a 10 per cent revenue growth, with revenue of more than Indian rupee (INR) 330 billion in the fiscal year ending March 31, 2011, as the global economy improves and companies globally further outsource IT functions," said Standard & Poor's credit analyst Suzanne Smith. She added the company expected the growth to continue to be 10 per cent -15 per cent in the next four to five years.
The company said it believed TCS would continue to register strong EBITDA margins higher than 28 per cent in the next two to three years, however, it expected EBITDA margins to be lower than the 30 per cent registered in fiscal 2010, because of the appreciation of the Indian rupee against the US dollar and higher wage costs. We believe both these factors would more than offset the benefits of higher employee utilisation, offshoring, and fixed-price contracts; and increasing operating efficiency at the project execution level.