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UBS Investment Research
Indian IT Services
Weak TPI data—implications for Indian IT
Indian vendors now win 30% of deals monitored by TPI
According to data published by TPI, a leading third-party deal advisor, Indian
vendors won 27% of deals of over US$25m in size, amounting to 20% of total
value of such deals signed in 9M10. This is up from 9% of deal wins and 5% of
contract value in 2005, as multi-sourced deals have become more prevalent.
We observe increased correlation between TPI data and vendor revenue
Our analysis indicates that the correlation between dollar revenue reported by large
Indian vendors and the total contract values published by the TPI index has
increased over the past two to three years. We view this as a function of the greater
participation of Indian vendors in the deals monitored by TPI.
Could weak TPI Index point to moderation in growth for Indian vendors?
The total contract values reported by TPI have been showing YoY declines over
the past three quarters, with TPI analysts guiding for a mixed year in 2011. We
think it is possible that the softening in deal signings could manifest itself in the
form of slower-than-expected revenue growth for Indian vendors (our current
estimates factor dollar revenue growth in the mid-twenties for large vendors).
Valuation: remain cautious, valuations reflect high growth expectations
We remain cautious on Indian IT and believe that valuations fully reflect the high
revenue growth expectations for the sector. We maintain our Neutral ratings on
Infosys Technologies, Tata Consultancy Services, and Tech Mahindra, and our Sell
ratings on HCL Technologies, Wipro, and Mahindra Satyam. We maintain our Buy
ratings on MphasiS and Patni.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indian IT Services
Weak TPI data—implications for Indian IT
Indian vendors now win 30% of deals monitored by TPI
According to data published by TPI, a leading third-party deal advisor, Indian
vendors won 27% of deals of over US$25m in size, amounting to 20% of total
value of such deals signed in 9M10. This is up from 9% of deal wins and 5% of
contract value in 2005, as multi-sourced deals have become more prevalent.
We observe increased correlation between TPI data and vendor revenue
Our analysis indicates that the correlation between dollar revenue reported by large
Indian vendors and the total contract values published by the TPI index has
increased over the past two to three years. We view this as a function of the greater
participation of Indian vendors in the deals monitored by TPI.
Could weak TPI Index point to moderation in growth for Indian vendors?
The total contract values reported by TPI have been showing YoY declines over
the past three quarters, with TPI analysts guiding for a mixed year in 2011. We
think it is possible that the softening in deal signings could manifest itself in the
form of slower-than-expected revenue growth for Indian vendors (our current
estimates factor dollar revenue growth in the mid-twenties for large vendors).
Valuation: remain cautious, valuations reflect high growth expectations
We remain cautious on Indian IT and believe that valuations fully reflect the high
revenue growth expectations for the sector. We maintain our Neutral ratings on
Infosys Technologies, Tata Consultancy Services, and Tech Mahindra, and our Sell
ratings on HCL Technologies, Wipro, and Mahindra Satyam. We maintain our Buy
ratings on MphasiS and Patni.
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