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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
3QFY11 review – good, but not enough to silence naysayers. Even as there was a
lot to like about the Indian IT companies’ (especially the Tier-I names’) earnings reports
for the Dec 2010 quarter, high expectations going into the quarter diverted focus
towards the few misses. It was an ‘on track’ quarter, in our view – industry is on track
to deliver 20-25% US$ rev growth in FY2012E, select large companies 30%+; midsized
companies are on track to underperform larger peers for a few more quarters. We
remain positive overall with a bias towards the Tier-I names. Infosys, TCS top picks.
Sector view – stay positive on demand, wary of margin/attrition pressure; Tier-I better-positioned
We remain positive on strength and sustainability of demand upturn for the Indian IT services
industry. Clients’ IT budget finalizations are on time this year, budgets are up 2-3% on an average,
spend-to-budget ratio will likely rise, discretionary spends will pick up, and market share gains for
offshore players will likely continue. In addition, strong deal renewal pipeline throws in additional
opportunities for Indian players to enter marquee accounts. Increased regulatory compliance
spending is likely to fill the slack on account of reduction in M&A-related spend in the BFSI vertical.
However, strong demand continues to keep the supply side under pressure. Attrition remains in
the ‘red’ zone for most players in the industry, pyramid correction is still at least 2-3 quarters away,
and wage pressure in the laterals market remains high. This will continue to reflect in relatively
poor margin performance for companies with relatively inferior revenue growth rates – most midsized
companies fall in this bucket, for now. This keeps us Cautious on the mid-sized pack.
3QFY11 – an in-line quarter overall; we would focus on broader demand indicators
3QFY11 earnings reports were a mixed bag with a few ‘beats’ and a few ‘misses’ . As we had
emphasized in our quarter preview note, high expectations going into the quarter laid ground for
a few misses versus expectations. Nonetheless, we believe that the results support our broader
thesis of strong revenue growth sustaining for the next few quarters at least. Yoy revenue growth
trajectory for the Tier-I companies is now in the 30% ballpark after several quarters. Demand
continues to become more and more broad-based with no apparent weak spots outside the
telecom OEM sub-vertical. Robust hiring continues both in the laterals market as well as campuses.
Most importantly, pricing commentary suggests a stable environment with a positive bias.
3QFY11 – broader trends/observations
Companies under our coverage that have reported so far, reported a revenue growth of 5.1%
qoq, robust in a seasonally weak Dec quarter. More importantly, yoy revenue growth of 26.5%
for this composite is among the highest in the past 10 quarters.
Margins – supply pressure continues to haunt; Re adds to sequential pressure. Mid-sized
companies disappointed in particular.
Rev growth composition – becoming more and more broad-based. Discretionary spend picking
up, clearly.
.
Hiring – continued at a strong clip.
Client metrics – remain strong, new client additions also robust.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
3QFY11 review – good, but not enough to silence naysayers. Even as there was a
lot to like about the Indian IT companies’ (especially the Tier-I names’) earnings reports
for the Dec 2010 quarter, high expectations going into the quarter diverted focus
towards the few misses. It was an ‘on track’ quarter, in our view – industry is on track
to deliver 20-25% US$ rev growth in FY2012E, select large companies 30%+; midsized
companies are on track to underperform larger peers for a few more quarters. We
remain positive overall with a bias towards the Tier-I names. Infosys, TCS top picks.
Sector view – stay positive on demand, wary of margin/attrition pressure; Tier-I better-positioned
We remain positive on strength and sustainability of demand upturn for the Indian IT services
industry. Clients’ IT budget finalizations are on time this year, budgets are up 2-3% on an average,
spend-to-budget ratio will likely rise, discretionary spends will pick up, and market share gains for
offshore players will likely continue. In addition, strong deal renewal pipeline throws in additional
opportunities for Indian players to enter marquee accounts. Increased regulatory compliance
spending is likely to fill the slack on account of reduction in M&A-related spend in the BFSI vertical.
However, strong demand continues to keep the supply side under pressure. Attrition remains in
the ‘red’ zone for most players in the industry, pyramid correction is still at least 2-3 quarters away,
and wage pressure in the laterals market remains high. This will continue to reflect in relatively
poor margin performance for companies with relatively inferior revenue growth rates – most midsized
companies fall in this bucket, for now. This keeps us Cautious on the mid-sized pack.
3QFY11 – an in-line quarter overall; we would focus on broader demand indicators
3QFY11 earnings reports were a mixed bag with a few ‘beats’ and a few ‘misses’ . As we had
emphasized in our quarter preview note, high expectations going into the quarter laid ground for
a few misses versus expectations. Nonetheless, we believe that the results support our broader
thesis of strong revenue growth sustaining for the next few quarters at least. Yoy revenue growth
trajectory for the Tier-I companies is now in the 30% ballpark after several quarters. Demand
continues to become more and more broad-based with no apparent weak spots outside the
telecom OEM sub-vertical. Robust hiring continues both in the laterals market as well as campuses.
Most importantly, pricing commentary suggests a stable environment with a positive bias.
3QFY11 – broader trends/observations
Companies under our coverage that have reported so far, reported a revenue growth of 5.1%
qoq, robust in a seasonally weak Dec quarter. More importantly, yoy revenue growth of 26.5%
for this composite is among the highest in the past 10 quarters.
Margins – supply pressure continues to haunt; Re adds to sequential pressure. Mid-sized
companies disappointed in particular.
Rev growth composition – becoming more and more broad-based. Discretionary spend picking
up, clearly.
.
Hiring – continued at a strong clip.
Client metrics – remain strong, new client additions also robust.
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