Dalal Street Investments

STPI Extension Impact on IT Companies

July 5, 2009

There have been a few investor queries on STPI extension, going into the Indian budget (July 6). In this note we look at various scenarios and its impact on tier-I companies.

STPI extended but no change in 10-year clause [Tax benefits expire for STPI units completing 10 years of operations or Mar’10 whichever is earlier] This is what happened with the extension last time. If that happened, (a) Infosys would not benefit as almost all their STPI centers (except one small one) are already out of STPI; (b) TCS would benefit significantly as the tax rate for FY11 is the same as FY10 – 18%; (c) Wipro would not benefit much; (d) HCL Tech would benefit marginally.

No STPI Extension: As per discussions with companies, they expect tax rates to go up: (a) Infosys ~18% in FY10 to ~20-22% in FY11; (b) TCS ~18% in FY10 to ~22-23% in FY11; (c) Wipro ~15% in FY10 to ~16.5-17% in FY11; (d) HCL Tech from ~15-16% in FY10 to ~28% in FY11.

The difference across companies is largely due to (a) SEZ readiness, (b) companies which had leased facilities and started building out STPI’s later still have facilities which have not completed 10 years, (c) difference in growth rate expectations.


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