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Results and management commentary likely to allay growth concerns
June-Q results should reflect that demand for offshore vendors has remained
resilient despite the volatile macroeconomic environment. Moreover, with client IT
services spending now moving toward 'growth' initiatives vs. 'operational
efficiency', we expect management commentary to be positive both on volume
growth and pricing for the medium term. This will likely be reflected in Infosys'
FY12 US dollar revenue growth guidance, which we expect to be raised to 20-22%
yoy vs. (18-20% yoy earlier). Our top picks are Infosys and TCS
June-Q: resilient volume growth despite volatile macroeconomic conditions
In our view, (1) globalization, (2) increased regulation and (3) the need for
operational efficiency are the key drivers for strength in demand for offshore IT
services vendors, despite the volatile macroeconomic environment. Thus, after a
seasonally weak March-Q, we expect revenue growth momentum to return to
normal in June-Q. We expect the top-tier Indian IT services companies to report
US dollar revenue growth of 5.4% qoq. Wage hikes will likely have a negative
impact on margins, which will be partially offset by the weakness in the rupee vs.
the euro (8-10% of revenues) and the British pound (15-20% of revenues).
We expect upward revision to FY12 revenue and EPS guidance by Infosys
We expect Infosys to report 5% qoq (vs. guidance of 2.5-3.5%qoq) US dollar
revenue growth. Given the June-Q beat, and demand strength, we expect Infosys’
FY12 US dollar revenue growth guidance to increase to 20-22% yoy (vs. 18-22%
yoy earlier). The upward revision in revenue growth estimates and stable currency
environment will also likely reduce the pressure on margins. Thus, we expect
management’s operating margin decline guidance of 300bps yoy will likely be
revised to a ~250bps decline. Thus, FY12 EPS guidance will likely increase to
INR132-134 (vs. INR126-128 earlier). This, along with 5-6% qoq US dollar revenue
growth guidance for 2QFY12 and upward revision to FY12 gross hiring guidance
should, in our view, significantly improve investor confidence in favor of Infosys.
Stocks underperformed benchmarks for three months, we remain positive
Top-tier IT stocks are trading at 17-22x FY12E earnings with a two-year EPS CAGR
of over 22%. Key triggers over the next six months should be the September
quarter results, improvement in demand from telecom and technology verticals
and improvement of the macroeconomic environment in Europe, which should
thereby help continue the demand strength for the sector. Our top picks remain
Infosys and TCS. We value Indian IT services companies on a one-year-forward PE
basis. Key risks include: (1) a protracted global economic slowdown; (2)
appreciation of the rupee vs. billing currencies and (3) greater competition from
multinationals, thereby increasing the pricing pressure
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results and management commentary likely to allay growth concerns
June-Q results should reflect that demand for offshore vendors has remained
resilient despite the volatile macroeconomic environment. Moreover, with client IT
services spending now moving toward 'growth' initiatives vs. 'operational
efficiency', we expect management commentary to be positive both on volume
growth and pricing for the medium term. This will likely be reflected in Infosys'
FY12 US dollar revenue growth guidance, which we expect to be raised to 20-22%
yoy vs. (18-20% yoy earlier). Our top picks are Infosys and TCS
June-Q: resilient volume growth despite volatile macroeconomic conditions
In our view, (1) globalization, (2) increased regulation and (3) the need for
operational efficiency are the key drivers for strength in demand for offshore IT
services vendors, despite the volatile macroeconomic environment. Thus, after a
seasonally weak March-Q, we expect revenue growth momentum to return to
normal in June-Q. We expect the top-tier Indian IT services companies to report
US dollar revenue growth of 5.4% qoq. Wage hikes will likely have a negative
impact on margins, which will be partially offset by the weakness in the rupee vs.
the euro (8-10% of revenues) and the British pound (15-20% of revenues).
We expect upward revision to FY12 revenue and EPS guidance by Infosys
We expect Infosys to report 5% qoq (vs. guidance of 2.5-3.5%qoq) US dollar
revenue growth. Given the June-Q beat, and demand strength, we expect Infosys’
FY12 US dollar revenue growth guidance to increase to 20-22% yoy (vs. 18-22%
yoy earlier). The upward revision in revenue growth estimates and stable currency
environment will also likely reduce the pressure on margins. Thus, we expect
management’s operating margin decline guidance of 300bps yoy will likely be
revised to a ~250bps decline. Thus, FY12 EPS guidance will likely increase to
INR132-134 (vs. INR126-128 earlier). This, along with 5-6% qoq US dollar revenue
growth guidance for 2QFY12 and upward revision to FY12 gross hiring guidance
should, in our view, significantly improve investor confidence in favor of Infosys.
Stocks underperformed benchmarks for three months, we remain positive
Top-tier IT stocks are trading at 17-22x FY12E earnings with a two-year EPS CAGR
of over 22%. Key triggers over the next six months should be the September
quarter results, improvement in demand from telecom and technology verticals
and improvement of the macroeconomic environment in Europe, which should
thereby help continue the demand strength for the sector. Our top picks remain
Infosys and TCS. We value Indian IT services companies on a one-year-forward PE
basis. Key risks include: (1) a protracted global economic slowdown; (2)
appreciation of the rupee vs. billing currencies and (3) greater competition from
multinationals, thereby increasing the pricing pressure
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