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Indian IT services -------------------------------------------------------- Maintain MARKET WEIGHT
Accenture results indicate continued strength in demand environment
● Accenture reported its Feb-11 quarter results overnight. Revenue
growth of 18% YoY (constant currency) was 7% ahead of CS
estimates.
● Management was bullish on the call and raised the outlook for
FY8/11 revenue growth to 11-14% from its previous 8-11%.
● Management commented that growth is being driven by key
secular trends including globalisation, a focus on higher
productivity, increasing regulation and innovation.
● Strong results from Accenture and positive comments from Indian
IT companies indicate a strong demand environment. We are
currently forecasting 30% YoY revenue growth for top-tier
companies in FY3/12. We are also confident in their ability to
maintain margins, leading to strong bottomline growth.
● Given the strong demand environment, we believe valuations are
not demanding. We thus maintain our positive view on the sector
and believe that Infosys and TCS could be best placed from a
longer term perspective.
Strong top-line growth
2Q revenues increased 17% YoY to US$6.1 bn compared to CS
estimates (Bryan Keane) of US$5.6 bn and guidance of US$5.6-
5.8 bn.
Compared to the company’s own guidance, 1% of growth
outperformance is attributable to currency. However, even excluding
this, revenue was US$200 mn higher than the top end of guidance.
Both the consulting and outsourcing businesses surprised positively.
Consulting revenue grew 20% YoY to US$3.5 bn. Outsourcing grew
13% YoY to $2.5 bn compared to our US$2.49 bn.
Increased guidance
Management has raised its outlook for FY8/11 revenue growth to 11-
14% from its previous 8-11%. We note that constant currency revenue
growth has now been accelerating for the past five quarters.
Strong orderbook
The company signed orders worth US$7.0 bn in the quarter. For the
full year ending August 2011, management has guided to order
bookings of US$25-28 bn.
Strong business momentum driven by secular trends
Management said that a few secular trends are driving business
growth and that this commentary is consistent across clients. Some of
the key trends are: (1) Globalisation, which is driving more
consolidation and also global operating model transformation; (2) a
focus on higher productivity, which is driving demand for ERP,
process reengineering and technology rationalisation; (3) increasing
regulation, which is driving demand for risk and regulatory compliance
activities, the development of new capabilities, and an accelerated
focus on sustainability-related solution and (4) innovation, which is
helping clients bring new products to market, navigate new technology
waves, or enhance their customer experience.
We retain our positive view on Indian IT companies
In our recent conversations, most companies pointed to a strong
demand environment. Current order book and customer comments
indicate that FY12 could be even stronger than FY11. We build
30% YoY US$-revenue growth for Infosys and TCS. Their strong
business models and excellent track records of execution for top-tier
companies give us confidence that this would also translate into
strong growth in the bottom line.
Given the strong demand environment, we believe that the valuations
are not demanding. We thus maintain our positive view on the sector
and believe that Infosys and TCS could be best placed from a longer
term perspective.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian IT services -------------------------------------------------------- Maintain MARKET WEIGHT
Accenture results indicate continued strength in demand environment
● Accenture reported its Feb-11 quarter results overnight. Revenue
growth of 18% YoY (constant currency) was 7% ahead of CS
estimates.
● Management was bullish on the call and raised the outlook for
FY8/11 revenue growth to 11-14% from its previous 8-11%.
● Management commented that growth is being driven by key
secular trends including globalisation, a focus on higher
productivity, increasing regulation and innovation.
● Strong results from Accenture and positive comments from Indian
IT companies indicate a strong demand environment. We are
currently forecasting 30% YoY revenue growth for top-tier
companies in FY3/12. We are also confident in their ability to
maintain margins, leading to strong bottomline growth.
● Given the strong demand environment, we believe valuations are
not demanding. We thus maintain our positive view on the sector
and believe that Infosys and TCS could be best placed from a
longer term perspective.
Strong top-line growth
2Q revenues increased 17% YoY to US$6.1 bn compared to CS
estimates (Bryan Keane) of US$5.6 bn and guidance of US$5.6-
5.8 bn.
Compared to the company’s own guidance, 1% of growth
outperformance is attributable to currency. However, even excluding
this, revenue was US$200 mn higher than the top end of guidance.
Both the consulting and outsourcing businesses surprised positively.
Consulting revenue grew 20% YoY to US$3.5 bn. Outsourcing grew
13% YoY to $2.5 bn compared to our US$2.49 bn.
Increased guidance
Management has raised its outlook for FY8/11 revenue growth to 11-
14% from its previous 8-11%. We note that constant currency revenue
growth has now been accelerating for the past five quarters.
Strong orderbook
The company signed orders worth US$7.0 bn in the quarter. For the
full year ending August 2011, management has guided to order
bookings of US$25-28 bn.
Strong business momentum driven by secular trends
Management said that a few secular trends are driving business
growth and that this commentary is consistent across clients. Some of
the key trends are: (1) Globalisation, which is driving more
consolidation and also global operating model transformation; (2) a
focus on higher productivity, which is driving demand for ERP,
process reengineering and technology rationalisation; (3) increasing
regulation, which is driving demand for risk and regulatory compliance
activities, the development of new capabilities, and an accelerated
focus on sustainability-related solution and (4) innovation, which is
helping clients bring new products to market, navigate new technology
waves, or enhance their customer experience.
We retain our positive view on Indian IT companies
In our recent conversations, most companies pointed to a strong
demand environment. Current order book and customer comments
indicate that FY12 could be even stronger than FY11. We build
30% YoY US$-revenue growth for Infosys and TCS. Their strong
business models and excellent track records of execution for top-tier
companies give us confidence that this would also translate into
strong growth in the bottom line.
Given the strong demand environment, we believe that the valuations
are not demanding. We thus maintain our positive view on the sector
and believe that Infosys and TCS could be best placed from a longer
term perspective.
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