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India Equity Research Reports, IPO and Stock News
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4Q FY11 preview – All eyes on the future
We expect a seasonally moderated 4Q (1.9-4.4% qoq US$ revenue growth across our
universe) with stable pricing (0.4-0.7% blended realization growth for the Top 4 players)
Margin should see tailwinds from both positive cross-currency (0.4-0.9% revenue uplift)
and INR depreciation (0.9% qoq). But, a likely flattish utilization and higher SG&A
expenses could cap the upside. We see 2.9% PAT growth for Top4 players
A 18-20% FY12 US$ revenue growth/14-15% INR EPS growth guidance from Infosys
appears baked-in. Look for trends in discretionary-spend-led services; large deal wins/
pipeline and FY12 wage hike guidance (we expect 10-12% for offshore) for upside
Infosys remains our top Buy idea; play HCLT for margin uptrend
4QFY11E: A lacklustre quarter? We estimate 1.9-4.4% qoq revenue growth in 4Q11 in US$
terms (2.1-4.7%% in INR terms) for our IT services universe. We see seasonality led slower
volume growth (1.3-3.8%), accentuated by likely pre-dominance of short-term projects in 2010,
in our view. We forecast realisation growth of 0.4-0.7% for the Top4 players on back of crosscurrency
gains and easing of volume linked pricing discounts. While 0.9% INR depreciation
should help margins, we expect gains to be capped by lower utilization/SG&A investments.
HCLT should see a margin uptrend (53bps qoq).
FY12 outlook: Pricing growth key to earnings upside. While players’ commentary in our
pre-results discussions remains positive, we believe the current consensus 25% FY12 US$
revenue growth forecasts are building in most of volume growth. Thus, the upside will be led
by faster/higher-than-expected realization growth and large (US$100m+) deal wins. Our
current realization assumptions are primarily based on portfolio gains and easing of volumelinked
discounts. Indication of absolute rate-card increases could be a positive surprise.
Infosys FY12 guidance – A ‘normal’ year? We expect Infosys to guide for 18-20% US$
revenue growth, ahead of Nasscom’s 16-18% for the sector. The EPS guidance could come
at Rs137-Rs139 assuming 100bp EBIT margin decline and 26% tax rate at Rs44.8/US$. This
should be neutral to stock movement in our view – note the 6%-8% out-performance over the
last 5 years (ex-FY09).
What can drive earnings upgrade? Besides rate-card renegotiations, look for 1) turnaround
in telecom vertical; 2) FY12 salary hikes – we see a lower 10-12% hike compared to FY11; 3)
FY12 hiring plans and overall campus offers made so far – fresher-lateral mix would be key to
margin management in light of likely wage inflation; and 4) additions to the active client base
and US$50m+ deal wins, critical to potential volume out performance.
Infosys’ FY12 guidance: What can surprise?
We expect Infosys to guide for 18-20% FY12 US$ revenue growth, ahead of Nasscom’s 16-18%
for the sector. Typically, the guidance assumes pricing constant at the previous quarter level.
Thus, a 20% US$ revenue growth guidance would imply a volume CQGR of 4.5% assuming 4Q
blended realization at our estimates (0.5% qoq increase; 1.9% higher than FY10 average).
Our analysis of Infosys performance versus guidance over the last 11 quarters, indicate a median
qoq volume growth out-performance of 1.7%. Thus, at a qoq volume out-performance over FY12
in line with historical median, and a minimal 0.3% qoq realization/product revenues growth, 20%
guidance could trend to a 25% US$ revenue growth.
Thus, the upside will be led by faster/higher than expected realization growth and large
(US$100m+) deal wins. Our current realization assumptions are primarily based on portfolio
gains and easing of volume-linked discounts. Indication of absolute rate-card increases could be
a positive surprise.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q FY11 preview – All eyes on the future
We expect a seasonally moderated 4Q (1.9-4.4% qoq US$ revenue growth across our
universe) with stable pricing (0.4-0.7% blended realization growth for the Top 4 players)
Margin should see tailwinds from both positive cross-currency (0.4-0.9% revenue uplift)
and INR depreciation (0.9% qoq). But, a likely flattish utilization and higher SG&A
expenses could cap the upside. We see 2.9% PAT growth for Top4 players
A 18-20% FY12 US$ revenue growth/14-15% INR EPS growth guidance from Infosys
appears baked-in. Look for trends in discretionary-spend-led services; large deal wins/
pipeline and FY12 wage hike guidance (we expect 10-12% for offshore) for upside
Infosys remains our top Buy idea; play HCLT for margin uptrend
4QFY11E: A lacklustre quarter? We estimate 1.9-4.4% qoq revenue growth in 4Q11 in US$
terms (2.1-4.7%% in INR terms) for our IT services universe. We see seasonality led slower
volume growth (1.3-3.8%), accentuated by likely pre-dominance of short-term projects in 2010,
in our view. We forecast realisation growth of 0.4-0.7% for the Top4 players on back of crosscurrency
gains and easing of volume linked pricing discounts. While 0.9% INR depreciation
should help margins, we expect gains to be capped by lower utilization/SG&A investments.
HCLT should see a margin uptrend (53bps qoq).
FY12 outlook: Pricing growth key to earnings upside. While players’ commentary in our
pre-results discussions remains positive, we believe the current consensus 25% FY12 US$
revenue growth forecasts are building in most of volume growth. Thus, the upside will be led
by faster/higher-than-expected realization growth and large (US$100m+) deal wins. Our
current realization assumptions are primarily based on portfolio gains and easing of volumelinked
discounts. Indication of absolute rate-card increases could be a positive surprise.
Infosys FY12 guidance – A ‘normal’ year? We expect Infosys to guide for 18-20% US$
revenue growth, ahead of Nasscom’s 16-18% for the sector. The EPS guidance could come
at Rs137-Rs139 assuming 100bp EBIT margin decline and 26% tax rate at Rs44.8/US$. This
should be neutral to stock movement in our view – note the 6%-8% out-performance over the
last 5 years (ex-FY09).
What can drive earnings upgrade? Besides rate-card renegotiations, look for 1) turnaround
in telecom vertical; 2) FY12 salary hikes – we see a lower 10-12% hike compared to FY11; 3)
FY12 hiring plans and overall campus offers made so far – fresher-lateral mix would be key to
margin management in light of likely wage inflation; and 4) additions to the active client base
and US$50m+ deal wins, critical to potential volume out performance.
Infosys’ FY12 guidance: What can surprise?
We expect Infosys to guide for 18-20% FY12 US$ revenue growth, ahead of Nasscom’s 16-18%
for the sector. Typically, the guidance assumes pricing constant at the previous quarter level.
Thus, a 20% US$ revenue growth guidance would imply a volume CQGR of 4.5% assuming 4Q
blended realization at our estimates (0.5% qoq increase; 1.9% higher than FY10 average).
Our analysis of Infosys performance versus guidance over the last 11 quarters, indicate a median
qoq volume growth out-performance of 1.7%. Thus, at a qoq volume out-performance over FY12
in line with historical median, and a minimal 0.3% qoq realization/product revenues growth, 20%
guidance could trend to a 25% US$ revenue growth.
Thus, the upside will be led by faster/higher than expected realization growth and large
(US$100m+) deal wins. Our current realization assumptions are primarily based on portfolio
gains and easing of volume-linked discounts. Indication of absolute rate-card increases could be
a positive surprise.
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