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IT
Potential Result Outperformers: Infosys, Hexaware
Potential Result Underperformers: Persistent
Result Expectations – Key Highlights
We expect a reasonably strong 5-6%qoq USD rev growth in 2Q for IT majors, net
of 0.5-1% cross-currency impact. Depreciation of INR vs. USD to help Infy, TCS
post op. margin expansion while Wipro, HCLT, TechM, Persistent and Rolta are
likely to show qoq margin decline on account of wage hikes. Hedging loss is likely
to lower other income for vendors this qtr, especially TCS.
Commentary on demand outlook is likely to be cautious (on account of macro health)
but optimistic as customers continue to spend on optimizing business. While Infy
could narrow full-yr US$ rev guidance towards lower end of range, EPS guidance
could be raised by 5%. We see heightened risks to guidance for Persistent.
Infy: Expect strong rev growth from Infy (5.6%qoq in US$), with some large
ramps in telecom. We believe Infy could maintain or narrow the FY12 USD
terms revenue guidance of 18 to 20% toward the lower end, if it wants to be
cautious. However, this is already factored into consensus. On the other
hand, it should raise FY12 EPS guidance by at least 5%, even if it reinvests
part Rupee gain in the business and could push consensus up by 2-3%.
TCS: We forecast strongest rev growth led by all round volume growth and
positive outlook commentary. However, while margins would expand led by
Rupee, this could be overshadowed by a significant loss on account of forex
hedging through options.
HCLT: Co will have a relatively muted quarter given its their wage hike
quarter. However, margin hit of ~150bps qoq likely lower than guided since
wage hike for senior employees pushed to Dec qrt and given Rupee
depreciation. Key to watch rev trends in enterprise solutions, which has more
consulting work in case of HCLT & hence is more cyclical. Annuity streams
like IT infra mngmnt services should do well. Deal pipeline likely robust.
Wipro: Wipro’s margins also likely to be hit by ~250bps on 2months impact
of wage hike given in June & limited upside from Rupee depreciation, given
they account revs at realized rate and had a higher realized rate vs peers in
1Q. While deal funnel has likely improved, we are still cautious given recent
management churn, greater proportion of tech clients in mix & limited upside
from Rupee given higher hedging.
Mid-tier vendors: Expect strong revenue growth and commentary from
Hexaware. Commentary on demand outlook is likely to be weak for
Persistent along with risks to its annual guidance given deal closures for the
company has been seeing delays. Tech Mahindra likely to report
disappointing quarter led by decline in BT revenues and margin impact from
salary hikes. Satyam likely steady quarter with stable margins. A steady
quarter with margin expansion is expected for Firstsource, coming off a low
base in the previous qtr.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IT
Potential Result Outperformers: Infosys, Hexaware
Potential Result Underperformers: Persistent
Result Expectations – Key Highlights
We expect a reasonably strong 5-6%qoq USD rev growth in 2Q for IT majors, net
of 0.5-1% cross-currency impact. Depreciation of INR vs. USD to help Infy, TCS
post op. margin expansion while Wipro, HCLT, TechM, Persistent and Rolta are
likely to show qoq margin decline on account of wage hikes. Hedging loss is likely
to lower other income for vendors this qtr, especially TCS.
Commentary on demand outlook is likely to be cautious (on account of macro health)
but optimistic as customers continue to spend on optimizing business. While Infy
could narrow full-yr US$ rev guidance towards lower end of range, EPS guidance
could be raised by 5%. We see heightened risks to guidance for Persistent.
Infy: Expect strong rev growth from Infy (5.6%qoq in US$), with some large
ramps in telecom. We believe Infy could maintain or narrow the FY12 USD
terms revenue guidance of 18 to 20% toward the lower end, if it wants to be
cautious. However, this is already factored into consensus. On the other
hand, it should raise FY12 EPS guidance by at least 5%, even if it reinvests
part Rupee gain in the business and could push consensus up by 2-3%.
TCS: We forecast strongest rev growth led by all round volume growth and
positive outlook commentary. However, while margins would expand led by
Rupee, this could be overshadowed by a significant loss on account of forex
hedging through options.
HCLT: Co will have a relatively muted quarter given its their wage hike
quarter. However, margin hit of ~150bps qoq likely lower than guided since
wage hike for senior employees pushed to Dec qrt and given Rupee
depreciation. Key to watch rev trends in enterprise solutions, which has more
consulting work in case of HCLT & hence is more cyclical. Annuity streams
like IT infra mngmnt services should do well. Deal pipeline likely robust.
Wipro: Wipro’s margins also likely to be hit by ~250bps on 2months impact
of wage hike given in June & limited upside from Rupee depreciation, given
they account revs at realized rate and had a higher realized rate vs peers in
1Q. While deal funnel has likely improved, we are still cautious given recent
management churn, greater proportion of tech clients in mix & limited upside
from Rupee given higher hedging.
Mid-tier vendors: Expect strong revenue growth and commentary from
Hexaware. Commentary on demand outlook is likely to be weak for
Persistent along with risks to its annual guidance given deal closures for the
company has been seeing delays. Tech Mahindra likely to report
disappointing quarter led by decline in BT revenues and margin impact from
salary hikes. Satyam likely steady quarter with stable margins. A steady
quarter with margin expansion is expected for Firstsource, coming off a low
base in the previous qtr.
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