India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IT Services
Potential result outperformers: TCS, HCLT
Potential result underperformers: Wipro
Volume growth this qtr should be seasonally better than
Mar quarter
We expect volume growth of ~3-5% for tier 1 vendors except Wipro (flattish
volumes qoq) and a positive rub-off from price realizations. TCS and HCLT are
likely to continue leading volume performance while Infy is likely to see modest
Q1 volumes post the revenue run-down in insurance and telecom verticals seen
last quarter.
Wage hikes/visa costs to impact op margins this qtr
This is a wage hike quarter for Infosys, Wipro, TCS, Hexaware and other
vendors, and margins are expected to sequentially dip. June quarter also should
see visa application costs impacting margins by 50-80bps qoq this quarter.
Utilization should move up qoq and help to offset wage increase partly
Realization should move up, though pricing still tough
Price realization for vendors should continue to show a positive uptick in quarter
helped by an Improving revenue mix with pick up in higher margin services like
application development and enterprise solutions and Cost-of-living-adjustment
(COLA) related increases. Billing rate increases beyond COLA look difficult at this
point of time and are contingent upon demand environment remaining strong.
Demand, pipeline commentary to stay positive
We expect the vendors to maintain a bullish tone on the deal flow and pipeline
opportunities, based on (1) continued shift towards use of “off-shoring”, (2) market
share gains for Indian vendors from a strong deal renewal pipeline and (3) limited
exposure to European banks (4-6% of revenues). Key risk: Further deterioration
in macro outlook from here on could impact decision making and discretionary
spend.
Expect positive surprise from TCS & HCLT
TCS: Expect 5-6% USD rev growth and ~200bps wage hike led EBIT margin
decline. Strong yoy revenue growth 30% (Rupee Terms) and earnings growth of
21%. The impact of promotions will be seen in the Sep quarter for TCS
HCL Tech: Full year results for HCLT. We expect them to show industry leading
revenue growth and margin expansion on operating leverage. They will likely
announce wage hike for FY12 which will hit them next quarter.
Infosys: May not beat USD revenue guidance of 3.5% at upper end by more than
1-1.5%. We forecast ~5% revenue growth for Infy, but lower margin decline of
~250-300bps vs the guided 400bps, given likely pricing uptick. We might see
them leaving revenue and earnings guidance largely unchanged, except for
margin beat in Q1
Wipro: Weak quarter due to management distraction post CEO change and
organization restructuring. Margin decline less than for peers given they will be
impacted by only one month of wage hike.
No comments:
Post a Comment