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UBS Investment Research
Indian IT Services
C urrency to boost a largely normal quarter
We expect Q2 FY12 to be largely untouched by ongoing macro weakness
We expect to see little impact of macro concerns on Q2 FY12, and expect larger IT
vendors to report dollar revenue growth of 3.0-7.7% QoQ, with rupee revenue
growth of 7.5-14.3% QoQ. Dollar revenue is likely to be marginally impacted by
appreciation of the US dollar against the Euro and GBP during the quarter.
Currency moves to boost operating margins, forex losses likely
The rupee depreciated 2.4% in Q2 FY12 vs. the previous quarter’s average, which
is likely to boost operating margins. We expect Infosys and TCS to post over a
125bp QoQ increase in margins in Q2 FY12. HCL Tech is likely to report a margin
decline of 150bp due to wage hikes during the quarter vs. guidance of 300bp. We
expect hedging losses for most vendors during the quarter.
Management commentary unlikely to change, watch pricing trends
We expect no big surprises in Q2 earnings, and will watch management
commentary for signs of caution on demand due to macro-related concerns. We do
not anticipate a revenue guidance cut from Infosys for FY12. We do not expect a
major shift in tone since budget discussions for 2012 are yet to begin. We will
keenly watch pricing trends for any signs of weakness given the recent industry
chatter about predatory pricing by larger vendors.
Sector outlook: negative, currency-related strength unlikely to sustain
We believe that a reasonably strong Q2 and weak currency are likely to provide
only short-term relief for the sector. We remain cautious on the demand outlook
with no Buy-rated stocks in our coverage universe.
Statement of Risk
We believe a sharp decline in IT spending or currency appreciation could result
in downward revisions in earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indian IT Services
C urrency to boost a largely normal quarter
We expect Q2 FY12 to be largely untouched by ongoing macro weakness
We expect to see little impact of macro concerns on Q2 FY12, and expect larger IT
vendors to report dollar revenue growth of 3.0-7.7% QoQ, with rupee revenue
growth of 7.5-14.3% QoQ. Dollar revenue is likely to be marginally impacted by
appreciation of the US dollar against the Euro and GBP during the quarter.
Currency moves to boost operating margins, forex losses likely
The rupee depreciated 2.4% in Q2 FY12 vs. the previous quarter’s average, which
is likely to boost operating margins. We expect Infosys and TCS to post over a
125bp QoQ increase in margins in Q2 FY12. HCL Tech is likely to report a margin
decline of 150bp due to wage hikes during the quarter vs. guidance of 300bp. We
expect hedging losses for most vendors during the quarter.
Management commentary unlikely to change, watch pricing trends
We expect no big surprises in Q2 earnings, and will watch management
commentary for signs of caution on demand due to macro-related concerns. We do
not anticipate a revenue guidance cut from Infosys for FY12. We do not expect a
major shift in tone since budget discussions for 2012 are yet to begin. We will
keenly watch pricing trends for any signs of weakness given the recent industry
chatter about predatory pricing by larger vendors.
Sector outlook: negative, currency-related strength unlikely to sustain
We believe that a reasonably strong Q2 and weak currency are likely to provide
only short-term relief for the sector. We remain cautious on the demand outlook
with no Buy-rated stocks in our coverage universe.
Statement of Risk
We believe a sharp decline in IT spending or currency appreciation could result
in downward revisions in earnings estimates.
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