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India Equity Research Reports, IPO and Stock News
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Technology
India
4QFY11E preview. We expect a subdued (relative to the strength seen in the past two
quarters) March 2011 quarter on revenue growth for most companies in our coverage
universe. However, March is typically a soft quarter and hence, we would not view soft
qoq comps as an indicator of the shape of FY2012E revenue growth. Infosys’ FY2012E
guidance, especially on margins and EPS, could also be on the weaker side.
Nevertheless, demand environment remains robust and we continue to expect a solid
FY2012E for the industry, especially the Tier-Is. We remain bullish with a Tier-I bias.
4QFY11E earnings –soft quarter likely, but par for the course
Even as we see upside to consensus earnings estimates for the Tier-I players, March 2011 quarter
earnings reports are unlikely to be a trigger, for two reasons – (1) quarter is likely to be soft on
sequential revenue growth, and (2) Infosys will likely continue its conservative ways in its FY2012E
guidance, especially on margins and EPS. We do note that December and March quarters have
historically been weaker than June and September quarters for the industry players (in alignment
with the client IT budget/ spend cycle) and hence, we would be wary of assigning undue
weightage to the sequential revenue growth comps for the March 2011 quarter.
That said, we expect the Tier-I companies to report a 3.3-5.7% qoq US$ revenue growth in the
Mar 2011E quarter, with HCLT the likely growth leader. We expect growth to be primarily volumeled
with modest pricing and cross-currency kickers. Among the Tier-IIs, we expect another quarter
of strong revenue growth from Hexaware, while a weak quarter from MindTree is expected post
the management’s mid-quarter earnings warning. Modest growth is likely to have a flow-through
impact on margin performance as well and we expect qoq margin decline for Infosys as well as
TCS; Wipro could report flat margins, while we build in 70 bps qoq margin improvement for HCLT.
Infosys – we expect 18-20% US$ revenue growth, 10-15% EPS growth guidance for FY2012E
We expect Infosys to guide for 18-20% US$ revenue growth guidance for FY2012E; this implies a
CQGR of 3.6 - 4.3%. We expect the company to build in conservatism in its margin assumptions
given its planned investments in local hiring and consulting. EPS guidance may range from Rs132-
137 assuming a Re/US$ rate of 45 and a margin decline guidance of 150-200 bps.
Key metrics to watch out for – commentary on demand, planned wage hikes
Metrics that we would focus on in the March 2011 earnings reports – (1) demand outlook – June
quarter revenue guidance of Wipro would be critical, as Infosys could continue to guide
conservative, (2) pricing trends and commentary, (3) revenue growth in discretionary spend areas,
(4) wage hike expectations – most companies announce their wage hikes in the months of April/
May, (5) net hiring numbers for the quarter and update on campus hiring, (6) attrition, utilization
and employee pyramid, and (7) client metrics.
Remain positive on the sector with a Tier-I bias
We remain positive on the strength and sustainability of demand upturn for the Indian IT services
industry. Clients’ IT budget finalizations are on time this year, budgets are up 2-3% on an average,
spend-to-budget ratio will likely rise, discretionary spends will pick up, and market share gains for
offshore players will likely continue. A likely soft 4QFY11E should not be seen as a sign of
weakening demand, in our view. The industry is on track to deliver 20%+ revenue growth in
FY2012E with the Tier-I players doing substantially better. We remain positive on the sector with a
Tier-I bias. Infosys and TCS are our top picks. Among midcaps, we like Hexaware.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
4QFY11E preview. We expect a subdued (relative to the strength seen in the past two
quarters) March 2011 quarter on revenue growth for most companies in our coverage
universe. However, March is typically a soft quarter and hence, we would not view soft
qoq comps as an indicator of the shape of FY2012E revenue growth. Infosys’ FY2012E
guidance, especially on margins and EPS, could also be on the weaker side.
Nevertheless, demand environment remains robust and we continue to expect a solid
FY2012E for the industry, especially the Tier-Is. We remain bullish with a Tier-I bias.
4QFY11E earnings –soft quarter likely, but par for the course
Even as we see upside to consensus earnings estimates for the Tier-I players, March 2011 quarter
earnings reports are unlikely to be a trigger, for two reasons – (1) quarter is likely to be soft on
sequential revenue growth, and (2) Infosys will likely continue its conservative ways in its FY2012E
guidance, especially on margins and EPS. We do note that December and March quarters have
historically been weaker than June and September quarters for the industry players (in alignment
with the client IT budget/ spend cycle) and hence, we would be wary of assigning undue
weightage to the sequential revenue growth comps for the March 2011 quarter.
That said, we expect the Tier-I companies to report a 3.3-5.7% qoq US$ revenue growth in the
Mar 2011E quarter, with HCLT the likely growth leader. We expect growth to be primarily volumeled
with modest pricing and cross-currency kickers. Among the Tier-IIs, we expect another quarter
of strong revenue growth from Hexaware, while a weak quarter from MindTree is expected post
the management’s mid-quarter earnings warning. Modest growth is likely to have a flow-through
impact on margin performance as well and we expect qoq margin decline for Infosys as well as
TCS; Wipro could report flat margins, while we build in 70 bps qoq margin improvement for HCLT.
Infosys – we expect 18-20% US$ revenue growth, 10-15% EPS growth guidance for FY2012E
We expect Infosys to guide for 18-20% US$ revenue growth guidance for FY2012E; this implies a
CQGR of 3.6 - 4.3%. We expect the company to build in conservatism in its margin assumptions
given its planned investments in local hiring and consulting. EPS guidance may range from Rs132-
137 assuming a Re/US$ rate of 45 and a margin decline guidance of 150-200 bps.
Key metrics to watch out for – commentary on demand, planned wage hikes
Metrics that we would focus on in the March 2011 earnings reports – (1) demand outlook – June
quarter revenue guidance of Wipro would be critical, as Infosys could continue to guide
conservative, (2) pricing trends and commentary, (3) revenue growth in discretionary spend areas,
(4) wage hike expectations – most companies announce their wage hikes in the months of April/
May, (5) net hiring numbers for the quarter and update on campus hiring, (6) attrition, utilization
and employee pyramid, and (7) client metrics.
Remain positive on the sector with a Tier-I bias
We remain positive on the strength and sustainability of demand upturn for the Indian IT services
industry. Clients’ IT budget finalizations are on time this year, budgets are up 2-3% on an average,
spend-to-budget ratio will likely rise, discretionary spends will pick up, and market share gains for
offshore players will likely continue. A likely soft 4QFY11E should not be seen as a sign of
weakening demand, in our view. The industry is on track to deliver 20%+ revenue growth in
FY2012E with the Tier-I players doing substantially better. We remain positive on the sector with a
Tier-I bias. Infosys and TCS are our top picks. Among midcaps, we like Hexaware.
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