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IT Services
n Some softness after the strong Sep’10 and Dec’10 show
We expect a 3.8-4.7% QoQ US$ revenue growth for our Tier I IT coverage universe with TCS and HCL Tech leading peers on revenue
growth. Amongst the Tier II companies we expect ~2.6-6.7% sequential US$ revenue growth with Infinite Solutions leading the mid tier
pack. We expect primarily a volume led revenue growth for the sector with marginal cross currency and price gains. While we expect
margins to remain flat sequentially for Infosys, margins could dip by ~30 bps QoQ for TCS on account of normalization of bad debt
provisioning. We expect Wipro to report ~40 bps improvement in margins sequentially driven by higher utilization benefits.
n Infosys could guide for ~18-20% sequential revenue growth, EPS outlook of Rs 134-138
We expect Infosys to guide for 18-20% revenue growth which would essentially entail a 3.5-4.2% CQGR through FY12. Similarly , in terms
of earnings outlook, we expect Infosys to guide for FY12 earnings of Rs 135-138(+13-15% YoY growth) building in ~150 bps decline in
margins conservatively and US$/INR exchange rate of Rs 45.
n Key areas of investor focus
We expect investors to focus on (1) Infosys’s annual revenue guidance apart from Wipro’s June’11 quarter guidance (given that
Infosys’s quarterly revenue guidance has continued to be conservative for past several quarters), (2) wage increments for FY12 (most
companies announce salary hikes in April), (3) hiring outlook (most notably campus recruitments), (4) outlook on margin levers ( supply
side pressures have only got stiffer) and (5) outlook on discretionary spending (especially after strong results from global majors Oracle
and Accenture) and pick up in IT spending in the telecom vertical
n Earnings upgrade need to wait for a while
A more modest March’11 quarter would keep consensus earnings upgrades in check in our view for now (street largely building in a 26-
27% YoY revenue growth for Tier I players) with supply side pressures only getting stiffer. We believe that demand continues to be
strong, a view reinforced by good results by global tech majors recently. We maintain ACCUMULATE on Infosys (TP Rs 3,400) and TCS
(TP Rs 1,275) amongst Tier 1 companies
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IT Services
n Some softness after the strong Sep’10 and Dec’10 show
We expect a 3.8-4.7% QoQ US$ revenue growth for our Tier I IT coverage universe with TCS and HCL Tech leading peers on revenue
growth. Amongst the Tier II companies we expect ~2.6-6.7% sequential US$ revenue growth with Infinite Solutions leading the mid tier
pack. We expect primarily a volume led revenue growth for the sector with marginal cross currency and price gains. While we expect
margins to remain flat sequentially for Infosys, margins could dip by ~30 bps QoQ for TCS on account of normalization of bad debt
provisioning. We expect Wipro to report ~40 bps improvement in margins sequentially driven by higher utilization benefits.
n Infosys could guide for ~18-20% sequential revenue growth, EPS outlook of Rs 134-138
We expect Infosys to guide for 18-20% revenue growth which would essentially entail a 3.5-4.2% CQGR through FY12. Similarly , in terms
of earnings outlook, we expect Infosys to guide for FY12 earnings of Rs 135-138(+13-15% YoY growth) building in ~150 bps decline in
margins conservatively and US$/INR exchange rate of Rs 45.
n Key areas of investor focus
We expect investors to focus on (1) Infosys’s annual revenue guidance apart from Wipro’s June’11 quarter guidance (given that
Infosys’s quarterly revenue guidance has continued to be conservative for past several quarters), (2) wage increments for FY12 (most
companies announce salary hikes in April), (3) hiring outlook (most notably campus recruitments), (4) outlook on margin levers ( supply
side pressures have only got stiffer) and (5) outlook on discretionary spending (especially after strong results from global majors Oracle
and Accenture) and pick up in IT spending in the telecom vertical
n Earnings upgrade need to wait for a while
A more modest March’11 quarter would keep consensus earnings upgrades in check in our view for now (street largely building in a 26-
27% YoY revenue growth for Tier I players) with supply side pressures only getting stiffer. We believe that demand continues to be
strong, a view reinforced by good results by global tech majors recently. We maintain ACCUMULATE on Infosys (TP Rs 3,400) and TCS
(TP Rs 1,275) amongst Tier 1 companies
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