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Indian IT Services
1QFY12 Preview: Seasonal Revenue Uptick/Margin Downtick
Seasonal revenue pick-up — We expect ~5-7% QoQ revenue growth ($-terms) for
tier-I IT companies (ex Wipro) – the quarter should see a seasonal pick-up in growth.
Growth is likely to be volume-led, with marginal pricing improvements QoQ. Crosscurrency is likely to impact $-term revenue growth positively by ~0.8% QoQ.
Margins to trend down — Expect margins to trend down primarily on account of wage
hikes effected in the quarter. Infosys/TCS will see the full impact of wage hikes in the
quarter; Wipro (wage hikes effected June) will see a partial impact, while HCLT will see
the wage hike impact only in the next quarter.
Key things to focus — (1) Growth outlook, given the macro uncertainty – particularly
trends on discretionary spends; (2) Attrition – expect some seasonal uptick; (3) Pricing
– quantum/timeframe of uptick given the strong demand/supply-side pressures; and (4)
Visas – commentary around rejection rates given heightened scrutiny.
Company specific — (1) TCS Q1 should be strong – in line with market expectations
– commentary on demand outlook key to watch out for; (2) Infosys Q1 unlikely to be a
positive catalyst – guidance/margin commentary key to watch out for; (3) Wipro – focus
will be on Q2 guidance; (4) HCLT – expect a strong quarter – management comments
on FY12 key to watch out for.
Sector in line YTD; Q1 unlikely to be a catalyst — The BSE IT Index has performed
in line with market YTD – HCLT/TCS have outperformed. Given macro headwinds and
high expectations going into Q1, we do not expect the quarterly earnings to be a
positive catalyst for the sector. Our Neutral view on the sector stays – HCLT/Wipro are
our preferred stocks
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian IT Services
1QFY12 Preview: Seasonal Revenue Uptick/Margin Downtick
Seasonal revenue pick-up — We expect ~5-7% QoQ revenue growth ($-terms) for
tier-I IT companies (ex Wipro) – the quarter should see a seasonal pick-up in growth.
Growth is likely to be volume-led, with marginal pricing improvements QoQ. Crosscurrency is likely to impact $-term revenue growth positively by ~0.8% QoQ.
Margins to trend down — Expect margins to trend down primarily on account of wage
hikes effected in the quarter. Infosys/TCS will see the full impact of wage hikes in the
quarter; Wipro (wage hikes effected June) will see a partial impact, while HCLT will see
the wage hike impact only in the next quarter.
Key things to focus — (1) Growth outlook, given the macro uncertainty – particularly
trends on discretionary spends; (2) Attrition – expect some seasonal uptick; (3) Pricing
– quantum/timeframe of uptick given the strong demand/supply-side pressures; and (4)
Visas – commentary around rejection rates given heightened scrutiny.
Company specific — (1) TCS Q1 should be strong – in line with market expectations
– commentary on demand outlook key to watch out for; (2) Infosys Q1 unlikely to be a
positive catalyst – guidance/margin commentary key to watch out for; (3) Wipro – focus
will be on Q2 guidance; (4) HCLT – expect a strong quarter – management comments
on FY12 key to watch out for.
Sector in line YTD; Q1 unlikely to be a catalyst — The BSE IT Index has performed
in line with market YTD – HCLT/TCS have outperformed. Given macro headwinds and
high expectations going into Q1, we do not expect the quarterly earnings to be a
positive catalyst for the sector. Our Neutral view on the sector stays – HCLT/Wipro are
our preferred stocks
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