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Indian IT Services
4Q Preview: Set sail for another good
year
Event
Indian IT vendors will report their Jan-March 2011 quarterly results over the
course of the next three weeks. We expect the companies to report a strong
quarter, backed by single-digit volume growth and multiple large deal win
announcements. (For company specific financial forecasts see pages 3–5.)
Impact
Strong performance to set the tone for next year. We acknowledge the
seasonality of fewer working days and slow ramp-up of projects in the first
quarter of a calendar year. Even so, we think the underlying demand is strong
enough to offset this and help companies deliver close to 5% QoQ US$
revenue growth.
Infosys: Our US$ revenue forecast for the quarter is US$1,661m, up 4.8%
QoQ and 3.2% ahead of the mid-point of company guidance. Our 4Q FY11
revenue estimate of Rs75bn is 4.2% ahead of the mid-point of company
guidance and our EPS estimate of Rs32.97 is 5.8% ahead. We expect the
company to guide for 20-22% YoY growth in FY12 revenues. This compares
with the 16-18% growth target that NASSCOM has outlined for the industry.
TCS: We expect the company to deliver another quarter of industry-leading
volume growth of 4.5%. Our 4Q revenue estimate of US$2.2bn (up 4.9%
QoQ) assumes a cross currency benefit of ~40bp for the company. A drop in
utilisation and employee addition should hurt margins by 100bp this quarter.
Wipro: Following the management reshuffle in the last quarter, we estimate
the company to deliver US$ revenues of US$1,404m (up 4.5% QoQ). Wipro’s
margin are yet to recover from the depressed base in 2Q FY11 and we
estimate increased investment in S&M to keep EBIT margins flat at 22.2%.
HCLT: We are factoring in revenues of Rs41bn (up 5.4% QoQ) and EBIT
margin of 13.6% (up ~50bp QoQ). The company has flagged one-off margin
weakness due to events in Japan and ramp-down in BPO revenues. Even so,
we believe the ~30-40bp adverse impact from these can be mitigated by
robust top-line and operational efficiencies.
RLTA: We are factoring in revenues of Rs4.5bn (up 15% YoY and up 2.6%
QoQ) and EBIT margin of 21% (down ~10bp QoQ). Our EPS estimate for the
quarter is Rs4.3.
Outlook
We remain positive on the sector. We believe stock returns from sector
leaders would beat market returns again this year. We do not expect FY12
estimates to move up for now but would once again highlight that FY13
earnings have headroom (Figs 1-4).
Stock plays – HCLT’s stock price is most levered to this quarter’s
performance, in our view. We expect the company to mirror peer performance
on the top-line and exhibit improvement in its margin profile.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian IT Services
4Q Preview: Set sail for another good
year
Event
Indian IT vendors will report their Jan-March 2011 quarterly results over the
course of the next three weeks. We expect the companies to report a strong
quarter, backed by single-digit volume growth and multiple large deal win
announcements. (For company specific financial forecasts see pages 3–5.)
Impact
Strong performance to set the tone for next year. We acknowledge the
seasonality of fewer working days and slow ramp-up of projects in the first
quarter of a calendar year. Even so, we think the underlying demand is strong
enough to offset this and help companies deliver close to 5% QoQ US$
revenue growth.
Infosys: Our US$ revenue forecast for the quarter is US$1,661m, up 4.8%
QoQ and 3.2% ahead of the mid-point of company guidance. Our 4Q FY11
revenue estimate of Rs75bn is 4.2% ahead of the mid-point of company
guidance and our EPS estimate of Rs32.97 is 5.8% ahead. We expect the
company to guide for 20-22% YoY growth in FY12 revenues. This compares
with the 16-18% growth target that NASSCOM has outlined for the industry.
TCS: We expect the company to deliver another quarter of industry-leading
volume growth of 4.5%. Our 4Q revenue estimate of US$2.2bn (up 4.9%
QoQ) assumes a cross currency benefit of ~40bp for the company. A drop in
utilisation and employee addition should hurt margins by 100bp this quarter.
Wipro: Following the management reshuffle in the last quarter, we estimate
the company to deliver US$ revenues of US$1,404m (up 4.5% QoQ). Wipro’s
margin are yet to recover from the depressed base in 2Q FY11 and we
estimate increased investment in S&M to keep EBIT margins flat at 22.2%.
HCLT: We are factoring in revenues of Rs41bn (up 5.4% QoQ) and EBIT
margin of 13.6% (up ~50bp QoQ). The company has flagged one-off margin
weakness due to events in Japan and ramp-down in BPO revenues. Even so,
we believe the ~30-40bp adverse impact from these can be mitigated by
robust top-line and operational efficiencies.
RLTA: We are factoring in revenues of Rs4.5bn (up 15% YoY and up 2.6%
QoQ) and EBIT margin of 21% (down ~10bp QoQ). Our EPS estimate for the
quarter is Rs4.3.
Outlook
We remain positive on the sector. We believe stock returns from sector
leaders would beat market returns again this year. We do not expect FY12
estimates to move up for now but would once again highlight that FY13
earnings have headroom (Figs 1-4).
Stock plays – HCLT’s stock price is most levered to this quarter’s
performance, in our view. We expect the company to mirror peer performance
on the top-line and exhibit improvement in its margin profile.
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