India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology India
Tech spending – unmistakable momentum; reiterate positive Tier-I bias.
November 2010 earnings reports of global tech majors Accenture and Oracle further
confirmed the sustenance of strong tech spending cycle. More importantly, signs of
discretionary spend pick-up were clear – Accenture reported a strong quarter of
consulting sales/bookings, while Oracle reported robust growth in new license sales. We
reiterate our positive coverage view on the Tier-I tech names. Infosys, TCS are top picks.
IT demand uptick story has legs and the legs are getting stronger by the day
November 2010 quarter earnings reports of Accenture and Oracle threw several positive signals on
the tech spending strength/acceleration, the most important ones being the clear uptick in
discretionary spends. Also, recent macro economic indicators, especially from the US, have shown
improving trends and the macro/micro dichotomy, as far as IT spends is concerned, could be
narrowing. Even as more concrete indicators in the form of Cognizant’s CY2011E revenue
guidance and management commentaries post CY2011E client IT budget closures are about two
months away, we find the early indicators encouraging and supportive of our ‘blockbuster
FY2012E for top-3 Indian IT names’ thesis.
Key revenue data points from Accenture/Oracle Nov 2010 earnings report
Accenture
` Strong 11.5% qoq US$ revenue growth to US$6.05 bn. More importantly, consulting revenues
drove growth with a 15.5% qoq uptick, clearly suggesting increasing discretionary spends.
Outsourcing revenues also grew a strong 6.5% qoq.
` On a yoy basis, constant currency revenue growth was in double digits at 14% for the first time
in several quarters. Overall cc yoy revenue growth trajectory continues to improve - it was 4%
in the May 2010 quarter, 8% in Aug 2010, and now 14% for Nov 2010.
` New order booking was up ~15% yoy to US$6.3 bn; this was down ~3% qoq but note this is a
seasonally weak quarter for order booking. More importantly, while consulting bookings were
up a modest 6% yoy, outsourcing bookings were up a strong 28%.
` Accenture has raised its rev. growth guidance for the year-ending Aug 2011 to 8-11% from the
earlier 7-10%; the company expressed confidence on achieving the higher end of the guidance
range.
` Growth was broad-based with 4 out of 5 verticals growing in double-digits yoy.
Oracle
` 48% yoy growth in overall revenues in constant currency; qoq growth was a strong 14% in
US$ terms. More importantly, new software license sales of US$2 bn were up 23% yoy in
constant currency following a strong 25% yoy growth in the Aug 2010 quarter. We note that
this is the strongest consecutive quarters of growth since Aug/Nov 2007 and the highest-ever
new license sales in the Nov quarter.
` Guidance of 10-20% yoy growth in new software licence sales for the next quarter indicates
confidence on sustenance of strong demand.
` Revenue growth was broad-based across geographies and verticals.
We believe FY2012E has the potential to be a 30%+ constant currency revenue growth year
for the top-3* Indian IT services companies (TCS, Infosys, Cognizant). For a detailed
discussion on this, please see our sector note published on Dec 1, 2010. Our current
estimates (under review) do not factor in this possibility yet and we believe neither do
consensus numbers. We clearly see possibility of further revenue upgrades for the Tier-I
names. Also, with most of the Street now having reset their Re/US$ assumptions to 43-44.5
for FY2012E, a weaker Re could lead to meaningful EPS upgrades as such. Supply-side
pressure remains high but again is built into the wage hike assumptions for these companies.
Essentially, the risk to EPS estimates is higher on the upside than on the downside.
We reiterate our positive stance on the Tier-I names with strong conviction BUYs on Infosys
and TCS. We remain cautious on the Tier-II pack (with the exception of Hexaware) on two
counts – (1) margin risk has not played out fully, and (2) revenue growth could continue to
lag larger names.
*on expected FY2012E revenues
No comments:
Post a Comment