28 June 2011

Implications of Accenture and Oracle results for India IT ::Morgan Stanley

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Implications of Accenture and 
Oracle results for India IT 
Quick Comment: Overall trends in outsourcing for
Accenture (revenue +8% QoQ, Bookings +7% QoQ)
and Oracle’s license revenue (+19% YoY) were
encouraging and indicate a healthy demand
environment for the India IT vendors, in our view.
What's new: Accenture reported 3Q11 revenue of
US$6.7bn ahead of its guidance (US$6.3-6.5bn) and
raised its full year revenue growth outlook to 14-15% in
local currency (vs 11-14% earlier). Oracle guided for
15% YoY F1Q12 revenue and EPS ahead of consensus
estimates.
Accenture clients continue to invest despite macro
concerns: Accenture management indicated that
despite macro challenges in US and Europe, its global
clients continue to focus on enhancements to reduce
cost of legacy systems and development for new
technologies. We believe Infosys, TCS and Wipro are
also benefitting from continued IT spending from clients
in an otherwise tumultuous macro environment.
Stable pricing environment should support
margins: We note that across large vendors the pricing
commentary is similar and indicates stable to upward
bias. Accenture management also expects pricing to
remain stable with upward bias in parts of their business.
We believe margins for India IT vendors in 2011 are
unlikely to take a step down in a stable pricing regime.
Strong growth in enterprise applications could
continue: Oracle reported F4Q11 and FY11 results.
New license software revenue grew 19% YoY in F4Q
and 23% YoY in FY11. Trends from Accenture and
Oracle results indicate that system integration and
enterprise applications revenue could continue to show
strong growth for India IT companies, in our view.
Maintain In-Line industry view: Infosys (OW) remains
our preferred stock to play the upside in India IT in 2H


Broad-based revenue growth provides comfort in demand
environment: Accenture revenue growth was broad based
across geographies and industries. In local currency terms, US
grew 14% YoY, EMEA 13% YoY, Asia Pacific 25% YoY.
Financial services grew 19% YoY, communication and hi tech
grew 16% YoY. For India IT vendors, we expect revenue
growth to be driven by Financial Services, Manufacturing and
Retail verticals with Telecom lagging the industry growth rates
in F2012.


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