Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
2QFY12 earnings review – on balance, positive. Sep 2011 was a robust, albeit not
spectacular, quarter for the Indian IT services players. Positives – (1) 3-8% qoq c/c
organic rev growth for Tier-Is; some mid-caps did better, (2) margins, aided partially by
currency, held up well across names, barring Wipro, (3) string hiring trends, and (4)
buoyant management commentary on demand pipeline and pricing. Negatives – (1)
tepid Dec quarter rev growth guidance from Cognizant, and (2) poor FCF generation,
especially for Wipro and HCLT. We remain constructive. Infosys/TCS top picks.
Demand – holding well, no red flags
Adverse macro-led concerns on demand linger on even as micro indicators, including the lead ones,
have not thrown a reason to worry thus far. Sep 2011 quarter revenue growth across companies
was robust and more importantly, broad-based – no signs of slowdown in any of the purported
‘trouble areas’ (BFSI, Europe, etc.). Quarter’s net hiring numbers as well as initial campus
recruitment figures (for FY2013E joinees) remain reflective of a healthy demand environment and
not a weak (or weakening) one. Also, mid-sized companies, who have historically been the first
ones to get hit at the onset of a material downtick in demand, reported fairly strong revenue
growth as well as hiring numbers. In fact, some mid-sized names (notably MindTree and Hexaware)
outperformed their larger peers on 2QFY12 sequential revenue growth. Management
commentaries waved no red flags either.
Macro developments – we keep an eye but do not see a reason to be overly pessimistic…
…overly pessimistic on offshore IT services demand, i.e. We reiterate our view that the correlation
chain linking global macro to corporate IT spends to IT outsourcing to IT offshoring is not
particularly strong (in a normal growth, slowdown or recession scenario – Lehman was different) –
in fact, it gets weaker at every link. IT offshoring growth story is about market share gains within
existing IT spends. It does not depend as much on growth in overall IT services spend. Of course,
strong IT services spend growth is good for offshore players – it provides that additional
discretionary spend kicker. However, accelerated offshore push on ‘keep-the-lights-on’ IT
spends in a tough ‘no IT spend growth or reduced IT spend’ environment can potentially
make up for the lack of ‘higher discretionary spend or increasing IT spend’ growth kicker.
It is also important to look at the emerging demand dynamics from the lens of revised
growth expectations. Stock prices, that were building in a low-20s US$ revenue growth for the
Tier-I pack around 3 months back, now demand a much lower 13-15% yoy growth. What we saw
in the Sep 2011 quarter has increased risks to the upside than to the downside on these estimates.
We remain positive. Our top picks – INFO, TCS among Tier-Is, and MTCL, PATNI among Tier-IIs.
Other key metrics from Sep 2011 quarter earnings reports
Margins – largely in-line for Tier-Is, with the exception of Wipro, which disappointed. Most midcaps
surprised on the upside, driven by currency tailwinds as well as better-than-expected
volume growth.
Growth metrics – another quarter of broad-based growth across verticals, geographies, and
service lines. BFSI continued to be robust and Europe did not throw any negative surprise.
Guidance – Infosys surprised the Street with strong 2HFY12 guidance (see Exhibit 2), Wipro’s
was in-line, while Cognizant’s Dec 2011 quarter guidance was subdued.
WC management and FCF generation were weak for Wipro, HCLT as well as TCS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Technology
India
2QFY12 earnings review – on balance, positive. Sep 2011 was a robust, albeit not
spectacular, quarter for the Indian IT services players. Positives – (1) 3-8% qoq c/c
organic rev growth for Tier-Is; some mid-caps did better, (2) margins, aided partially by
currency, held up well across names, barring Wipro, (3) string hiring trends, and (4)
buoyant management commentary on demand pipeline and pricing. Negatives – (1)
tepid Dec quarter rev growth guidance from Cognizant, and (2) poor FCF generation,
especially for Wipro and HCLT. We remain constructive. Infosys/TCS top picks.
Demand – holding well, no red flags
Adverse macro-led concerns on demand linger on even as micro indicators, including the lead ones,
have not thrown a reason to worry thus far. Sep 2011 quarter revenue growth across companies
was robust and more importantly, broad-based – no signs of slowdown in any of the purported
‘trouble areas’ (BFSI, Europe, etc.). Quarter’s net hiring numbers as well as initial campus
recruitment figures (for FY2013E joinees) remain reflective of a healthy demand environment and
not a weak (or weakening) one. Also, mid-sized companies, who have historically been the first
ones to get hit at the onset of a material downtick in demand, reported fairly strong revenue
growth as well as hiring numbers. In fact, some mid-sized names (notably MindTree and Hexaware)
outperformed their larger peers on 2QFY12 sequential revenue growth. Management
commentaries waved no red flags either.
Macro developments – we keep an eye but do not see a reason to be overly pessimistic…
…overly pessimistic on offshore IT services demand, i.e. We reiterate our view that the correlation
chain linking global macro to corporate IT spends to IT outsourcing to IT offshoring is not
particularly strong (in a normal growth, slowdown or recession scenario – Lehman was different) –
in fact, it gets weaker at every link. IT offshoring growth story is about market share gains within
existing IT spends. It does not depend as much on growth in overall IT services spend. Of course,
strong IT services spend growth is good for offshore players – it provides that additional
discretionary spend kicker. However, accelerated offshore push on ‘keep-the-lights-on’ IT
spends in a tough ‘no IT spend growth or reduced IT spend’ environment can potentially
make up for the lack of ‘higher discretionary spend or increasing IT spend’ growth kicker.
It is also important to look at the emerging demand dynamics from the lens of revised
growth expectations. Stock prices, that were building in a low-20s US$ revenue growth for the
Tier-I pack around 3 months back, now demand a much lower 13-15% yoy growth. What we saw
in the Sep 2011 quarter has increased risks to the upside than to the downside on these estimates.
We remain positive. Our top picks – INFO, TCS among Tier-Is, and MTCL, PATNI among Tier-IIs.
Other key metrics from Sep 2011 quarter earnings reports
Margins – largely in-line for Tier-Is, with the exception of Wipro, which disappointed. Most midcaps
surprised on the upside, driven by currency tailwinds as well as better-than-expected
volume growth.
Growth metrics – another quarter of broad-based growth across verticals, geographies, and
service lines. BFSI continued to be robust and Europe did not throw any negative surprise.
Guidance – Infosys surprised the Street with strong 2HFY12 guidance (see Exhibit 2), Wipro’s
was in-line, while Cognizant’s Dec 2011 quarter guidance was subdued.
WC management and FCF generation were weak for Wipro, HCLT as well as TCS.
No comments:
Post a Comment