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Information Technology
FY12 guidance “whisper” not loud enough relative to consensus
We expect Infosys to guide US$ revenue growth of 16.5-18.5% YoY
for FY12E and EPS of |135-137 (13.4%-15.1% assuming |119 EPS
for FY11E), conservative relative to consensus expectation of 23%
revenue growth and ~|150 in EPS. Recall, in April 2010, Infosys
guided for 16-18% US$ revenue and 2-2.1% rupee EPS growth and
is likely to finish FY11E with ~26% revenue and 9% rupee EPS
growth. Though Infosys could likely outperform its FY12 guidance
by 8-10 percentage points (p.p), elevated expectations could leave
limited earnings upgrades. Sequentially, we expect a soft quarter
with Tier 1 vendors reporting an average 3-4.5% US$ revenue
growth helped in part volume growth & 0.9%, 1.5% & 1.7%
depreciation of the US$ vs. the Euro, pound and Australian dollar.
Expect currency tailwinds in Q4FY11
We expect IT companies within coverage universe to report
consolidated EBITDA margins of 25.7%, a decline of 30bps QoQ,
primarily due to modest revenue growth coupled with continued
hiring. However, 1.1% QoQ deprecation of the average rupee vs. the
dollar could positively impact operating margin by 25-30bps.
Utilisation could pressure operating margins as fresher’s hired in
Q3FY11 and Q4FY11 weigh in.
Accenture’s (ACN) consulting bookings at pre-Lehman levels bode
well for discretionary spending
Analysing ACN’s bookings trends since Q4FY08 (FY ends August)
suggests that the company reported one of its strongest quarterly
bookings. Noticeably, at $3.8 billion, consulting bookings were
higher compared to pre-Lehman levels of (August 2008, Q4FY08)
$3.6 billion. This implies discretionary spending could likely
continue for Indian vendors.
Operating highlights: peep into ACN Q2FY11 press release
In Q2FY11, Accenture’s reported double growth across all five
verticals. On an as reported basis, Financial Services grew 17.5%
Y/Y, Communications High Tech (14.8%), Natural Resources (26%),
Health and Public Services (13.9%) and Consumer Products (13.9%).
Geographically, Americas grew 21.4% Y/Y, APAC (31%) while
Europe grew 8.6/%.
Company specific view
Company Remarks
HCL Tech We expect US$ revenue growth of 4.5% QoQ primarily driven by core software
(6.5%). QoQ, IMS US$ revenues could be flat while BPO could decline to $4.4
million due to revenue loss from Japanese earthquake. Operational efficiency,
sunset of hedging losses could help improve EBITDA margins by 76bps
Infosys We expect US$ revenue growth of 3% QoQ, led by 2.2% volume growth and 0.6%
pricing improvements. EBITDA margin is expected to rebound to 33.4%, up 17 bps
QoQ. Expect Net Profit to grow 4.1% QoQ growth helped by operational efficiencies
& higher other income due to improving yields.
Mastek We expect revenues to decline 5.6% QoQ due to partial loss on Capita account.
EBITDA margin could be (-1%) as declining revenue could offset gains made by cost
rationalization measures. Expect sluggish revenue performance pending acquisition
of new logo's, while bookings could be scaled down for Capita loss
NIIT Ltd We expect SLS to be a growth driver with 11% YoY growth followed by CLS at 9%.
ILS could be soft with 8% QoQ growth due to low order book in Q3FY11. CLS & SLS
EBITDA margins should be stable on YoY basis. ILS margins could be soft leading to
96 bps YoY decline in overall EBITDA margins.
Patni
Computers
We expect a modest 1.9% dollar revenue growth QoQ led by equal growth from
volume and pricing. EBITDA margins will expand by 110 bps. Other income could
likely come down due to usage of cash by iGate and likely dividend payouts
Rolta We expect revenue to decline 1.8% QoQ due to loss of revenue from Shaw JV. At
37.4%, EBITDA margins should be flat YoY. Interest cost will decline this quarter due
to debt repayment of ~|78 crores. We are modelling 1.9% volume growth for EGIS
business and flat billing rates for all verticals.
Sasken We expect Sasken to report 4.7% QoQ decline in revenues as Nokia continues to
shift onsite work offshore. EBITDA margins should be flat QoQ at 19% as company
rationalizes cost. PAT margin should decline 40bps QoQ to 11% due to lower
revenue growth
TCS We expect TCS to report 4% US$ & 3.5% rupee revenue growth on the back of 3.3%
volume growth, 0.7% pricing and favourable cross currency. Further we are
modelling 96bps decline in EBITDA margins to 29.2% as freshers hired weigh in.
Tech
Mahindra
We expect US$ revenues to grow by 1% with non-BT accounts growing at 3% QoQ.
BT is expected to decline 5% QoQ to $112 mln. EBITDA margin is expected to
decline by 80 bps on account modest revenue growth. Consolidation of Mahindra
Satyam could surprise earnings positively.
Wipro We are modelling IT services volume growth of 2.5% QoQ coupled with 0.5% pricing
improvements leading to revenue growth of 4% QoQ. Consolidated revenues are
expected to grow 1.6% QoQ, while EBIT margin should remain flat at 18.4%.
Q4FY11E tax rates could rise to 18% vs.16.5% in Q3.
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Information Technology
FY12 guidance “whisper” not loud enough relative to consensus
We expect Infosys to guide US$ revenue growth of 16.5-18.5% YoY
for FY12E and EPS of |135-137 (13.4%-15.1% assuming |119 EPS
for FY11E), conservative relative to consensus expectation of 23%
revenue growth and ~|150 in EPS. Recall, in April 2010, Infosys
guided for 16-18% US$ revenue and 2-2.1% rupee EPS growth and
is likely to finish FY11E with ~26% revenue and 9% rupee EPS
growth. Though Infosys could likely outperform its FY12 guidance
by 8-10 percentage points (p.p), elevated expectations could leave
limited earnings upgrades. Sequentially, we expect a soft quarter
with Tier 1 vendors reporting an average 3-4.5% US$ revenue
growth helped in part volume growth & 0.9%, 1.5% & 1.7%
depreciation of the US$ vs. the Euro, pound and Australian dollar.
Expect currency tailwinds in Q4FY11
We expect IT companies within coverage universe to report
consolidated EBITDA margins of 25.7%, a decline of 30bps QoQ,
primarily due to modest revenue growth coupled with continued
hiring. However, 1.1% QoQ deprecation of the average rupee vs. the
dollar could positively impact operating margin by 25-30bps.
Utilisation could pressure operating margins as fresher’s hired in
Q3FY11 and Q4FY11 weigh in.
Accenture’s (ACN) consulting bookings at pre-Lehman levels bode
well for discretionary spending
Analysing ACN’s bookings trends since Q4FY08 (FY ends August)
suggests that the company reported one of its strongest quarterly
bookings. Noticeably, at $3.8 billion, consulting bookings were
higher compared to pre-Lehman levels of (August 2008, Q4FY08)
$3.6 billion. This implies discretionary spending could likely
continue for Indian vendors.
Operating highlights: peep into ACN Q2FY11 press release
In Q2FY11, Accenture’s reported double growth across all five
verticals. On an as reported basis, Financial Services grew 17.5%
Y/Y, Communications High Tech (14.8%), Natural Resources (26%),
Health and Public Services (13.9%) and Consumer Products (13.9%).
Geographically, Americas grew 21.4% Y/Y, APAC (31%) while
Europe grew 8.6/%.
Company specific view
Company Remarks
HCL Tech We expect US$ revenue growth of 4.5% QoQ primarily driven by core software
(6.5%). QoQ, IMS US$ revenues could be flat while BPO could decline to $4.4
million due to revenue loss from Japanese earthquake. Operational efficiency,
sunset of hedging losses could help improve EBITDA margins by 76bps
Infosys We expect US$ revenue growth of 3% QoQ, led by 2.2% volume growth and 0.6%
pricing improvements. EBITDA margin is expected to rebound to 33.4%, up 17 bps
QoQ. Expect Net Profit to grow 4.1% QoQ growth helped by operational efficiencies
& higher other income due to improving yields.
Mastek We expect revenues to decline 5.6% QoQ due to partial loss on Capita account.
EBITDA margin could be (-1%) as declining revenue could offset gains made by cost
rationalization measures. Expect sluggish revenue performance pending acquisition
of new logo's, while bookings could be scaled down for Capita loss
NIIT Ltd We expect SLS to be a growth driver with 11% YoY growth followed by CLS at 9%.
ILS could be soft with 8% QoQ growth due to low order book in Q3FY11. CLS & SLS
EBITDA margins should be stable on YoY basis. ILS margins could be soft leading to
96 bps YoY decline in overall EBITDA margins.
Patni
Computers
We expect a modest 1.9% dollar revenue growth QoQ led by equal growth from
volume and pricing. EBITDA margins will expand by 110 bps. Other income could
likely come down due to usage of cash by iGate and likely dividend payouts
Rolta We expect revenue to decline 1.8% QoQ due to loss of revenue from Shaw JV. At
37.4%, EBITDA margins should be flat YoY. Interest cost will decline this quarter due
to debt repayment of ~|78 crores. We are modelling 1.9% volume growth for EGIS
business and flat billing rates for all verticals.
Sasken We expect Sasken to report 4.7% QoQ decline in revenues as Nokia continues to
shift onsite work offshore. EBITDA margins should be flat QoQ at 19% as company
rationalizes cost. PAT margin should decline 40bps QoQ to 11% due to lower
revenue growth
TCS We expect TCS to report 4% US$ & 3.5% rupee revenue growth on the back of 3.3%
volume growth, 0.7% pricing and favourable cross currency. Further we are
modelling 96bps decline in EBITDA margins to 29.2% as freshers hired weigh in.
Tech
Mahindra
We expect US$ revenues to grow by 1% with non-BT accounts growing at 3% QoQ.
BT is expected to decline 5% QoQ to $112 mln. EBITDA margin is expected to
decline by 80 bps on account modest revenue growth. Consolidation of Mahindra
Satyam could surprise earnings positively.
Wipro We are modelling IT services volume growth of 2.5% QoQ coupled with 0.5% pricing
improvements leading to revenue growth of 4% QoQ. Consolidated revenues are
expected to grow 1.6% QoQ, while EBIT margin should remain flat at 18.4%.
Q4FY11E tax rates could rise to 18% vs.16.5% in Q3.
Source: Company, ICICIdirect.com Research
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