Tech Express – India European growth strengthening -Macquarie Research,

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MacqTech Express – India
European growth strengthening
Event
 Accenture and Oracle declared their quarterly results on Thursday night that
showcase decent momentum from Europe. We view these results as positive
for the broader Indian IT sector and specifically for HCLT. We present key
highlights from the results and earnings conference call hosted last night US
time.

 Growth in Outsourcing contracts and increased traction in discretionary spend
are the key notables from the two results. Retain positive view on the sector.
Impact
 ACN results: Double digit growth in Outsourcing contracts augurs well.
We expect Tier 1 players in the Indian IT sector to deliver solid 27%+US$
revenue growth in FY12E. Positive commentary from Accenture management
on the conference call and 23% QoQ increase in new bookings to US$3.2bn
(vs. US$2.6bn) has a positive read through for the Indian IT players (See Fig
1 & 2 for).
 Full year guidance raised at ACN. The company has raised its full year
revenue growth target to 11% - 14% from 8% to 11% earlier. The positive
swing is due to +1% order book growth and +2% impact from currency.
 Oracle Results: Europe surprises. New licence sales were up 27% YoY
(America - 34% YoY), EMEA (Up 20% YoY) and Asia Pac (up 23% YoY) in
constant currency terms. Specifically, we note the strength of new license
sales in Europe. Our SAP analyst, Marco Zeidler, expects strong quarter from
the company from EMEA region. SAP is expected to release its results on 28
April.
 Accelerated ERP deployments to follow from rising new licence sales.
Increased spends in enterprise resource planning (ERP) deployments follow a
lag of 6-9 months from new licence sales. We expect similar uptick in
Enterprise Application Services revenues of Indian IT vendors in next 2
quarters. HCLT, deriving 22% of its revenues from EAS is our preferred pick
among Tier2 players to play this theme (See Fig 3).
 What does all this signal for Infosys FY12 guidance? We expect Infosys to
guide conservatively to ~20%-22% US$ top-line growth in FY12E. Cognizant
(CTSH US, US$80, Not rated) had outlined 26% growth guidance for CY11 in
its annual results declared on 7 February.
Outlook
 Stock implications for Indian IT. Positive momentum in global IT spend
evident from these results gives us confidence in our FY12 estimates. TCS
and Infosys are both available at attractive valuations (~20x FY12 PER) for
robust 22%+ earnings growth in FY12 and 20%+ growth in FY13. Top-line
momentum should help address HCLT the margin erosion seen in FY11 and
post 40% earnings growth in FY12.