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Slightly better growth expected in a weak quarter
We expect Infosys and TCS to report a slightly better growth in the range of ~4% and ~7.3%
respectively on a sequential basis in an otherwise traditionally weak quarter due to lower
number of working days in the quarter. Positive surprise on the revenues can come due to
demand traction and budget flush. We believe demand will be strong from BFSI followed
by upcoming verticals like healthcare and energy and utilities. On geographical front we
expect strong demand traction from US and Asia Pacific while a slightly slower demand
from Europe.
Margins can be stable to slightly low
We expect margins to be either flat or slightly low due to salary hikes, bonus and increased
recruitment costs partially offset by positive currency movements and addition of people at the
bottom of pyramid. We expect TCS to report flat to slightly low margins on the back of high
revenue growth from India and Asia Pacific region and continued cost cutting efforts.
Domestic growth to help outperformance for TCS and CMC
We expect both TCS and CMC to report higher revenue on a sequential basis on the back
of project announcement in e-governance and shared services.
Infosys Technologies
We expect Infosys to report revenues of INR72.26bn, implying a growth of 26% YoY and
4% QoQ. Our revenue estimates are ~5% higher than Infosys guidance of INR68.84bn
based on average conversion of INR45.5/USD vs. Infosys guidance of INR44.5/USD.
We expect an EPS of INR31.54 vs. company’s guidance of INR29.37-29.89. Our higher
estimates are primarily due to lower employee costs (due to rationalisation of pyramid i.e.,
addition of freshers), cost rationalisation in selling, general and administrative expenses
and positive currency movements during the quarter.
We believe Infosys will guide 4QFY11 revenues in the range of INR72.5-73.5bn and earnings
of INR31.50-32.40 at INR/USD of 45.5. For the full year, we expect EPS guidance to be
raised to INR119-121 from earlier range of INR115-117. We expect Infosys to update on
their acquisition pipeline and future deployment of cash, although we do not expect any
significant dividend in this quarter.
TCS
We expect TCS to report revenues of INR 99.63bn implying a growth of 30% YoY and 7%
QoQ. Our higher estimates are based on company’s global demand recovery and increasing
presence in fastest growing IT services market i.e., India. We expect most of the
outperformance in TCS’ revenue growth to come from India. We believe the company will
report an EPS of INR12.06 primarily due to lower employee costs (due to rationalisation of
pyramid) in spite a wage hike and bonus announced in the previous quarter, cost
rationalisation in selling, general and administrative expenses and positive currency
movements during the quarter.
Although TCS has not given any guidance, we believe it will talk positively on the overall
demand environment and will also provide more information on its "BANCS" deal with
Deutsche Bank and also its future strategy on the product front.
CMC
CMC is expected to report revenues of INR2.87bn implying YoY growth of 36% and sequential
growth of 6%. Our high revenue estimates are based on both global demand recovery and
very high domestic growth primarily from government projects. In terms of earnings, we
estimate the company to post an EPS of INR35.06 primarily due to continuous shift from low
margin consumer business to high margin IT enabled services business.
We expect very positive commentary from the company primarily in the IT-enabled services
segment and education vertical. All three verticals, i.e., IT-enabled services, Systems
Integration and Education are posting significant growth for the last few quarters and we
expect the momentum to continue going ahead on the back of significant demand in the
domestic IT services market triggered by budget allocation by most of the state governments
and e-governance roll out coupled with successful implementation of UID.
Wipro
We believe Wipro to report revenues of INR81.57bn implying 18% YoY and 4% QoQ
growth based on global demand recovery. We believe the company will report an EPS of
INR5.15 and we have built in margin compression due to increased employee costs driven
by promotions increased recruitment costs. Wipro is expected to guide 4QFY11 revenue
growth of 3-5% on a sequential basis.
We expect the company to guide about the overall demand scenario and its budget estimates
for FY12e.
Patni Computer Systems
We anticipate Patni to post revenue of INR8.5bn implying a sequential growth of ~2%. PAT
is expected to increase by ~5% QoQ to INR1.52bn. Diluted EPS in 4QCY10 is estimated at
INR11.32, implying full year EPS of INR44.70.
We expect clarity on deal wins, update on ramp-ups in projects, attrition trend and outlook
for CY11.
Persistent Systems
We expect Persistent to report revenues of INR1.98bn implying a sequential growth of 6%.
PAT is expected to increase by ~2% QoQ to INR365m. Diluted EPS in 3QFY11 is estimated
at INR9.14.
We expect company to guide sequential revenue growth of ~6-7% and also update on
new projects and client budgets.
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