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Performance ahead of low running expectation has set the tone for Tier-1 Indian IT
Services (TCS, Infosys, Wipro, HCLT). Volume growth in mid-single digit along with
margin impetus from rupee depreciation has pushed margins. The deal wins
indicates little trouble for Tier-1. Moreover, better-than-expected result for global
tech major and deal flow (TPI) in Q3CY11 further reaffirms strength. We remain
confident 20%+USD revenue growth. We reiterate ‘BUY’ on HCLT, Infosys and TCS.
Performance exceeded low running expectation: After quarters of
underperformance, Wipro led the growth pack reporting 4.6% QoQ (@cc 5.5%)
growth, followed by TCS 4.7% QoQ (@cc 5.2%), Infosys 4.5% QoQ (@cc 5%) and
HCLT lagged with 4.1% QoQ (@cc 5.1%) growth. The volume growth for Tier-1
was 5.3% QoQ, in-line with our view of mid-single-digit growth, aided by Wipro
(6.0%), TCS (5.8%), Infosys (4.4%) and HCLT (4%). However, the management
tone continues to be cautious on the overall environment.
What surprised us? Positively 1) Currency depreciation and operational
efficiency pushed margin expansion by 22bps QoQ 2) Rupee revenue growth
was 7.5% QoQ, whereas USD revenue growth was 4.5% QoQ 3) Blended pricing
muted QoQ for Tier-1 4) 190 new clients added by Tier-1, strongest in the last 23
quarters 5) Lateral hiring de-grow QoQ for the first time in last nine quarters 6)
Total employee grew by 5.5% QoQ, in-line with volume growth 7) Onsite
revenue contribution grew by 7bps, 8th consecutive quarter of uptick (excluding
OND-10) 8) Total active clients grew by 76 clients for Tier-1, strongest in last 13
quarters. Negatively 1) PAT Margin decline of 74bps QoQ, due to forex loss 2)
Commentary on deal pipeline continues to be cautious 3) Top-10 clients grew by
3.8% QoQ, 4th consecutive quarter of slower than overall growth 4) Revenue
productivity (Revenue/Billed man-months) declined by -0.7% QoQ.
Fresher hiring for FY13: Infosys and TCS has guided for 23k and 45 fresher hiring
guidance for FY13, respectively. The guidance for Infosys looks conservative.
What to expect? 1) We expect deal pipeline to improve further 2) We expect
EBITDA margin to be stable as currency fluctuates and companies absorb cost 3)
We see attrition and cost pressure easing out further.
Better than expected result from Accenture, Capgemini, Cognizant, and Logica:
Global IT Services majors have reported quarterly results ahead of consensus,
expectation reaffirming strength in demand.
Remain positive on Tier‐1: We reiterate our positive stance on Tier-1. We also
revise our estimates upward by 2-5% for FY12 and FY13 due to weaker rupee.
We reiterate our ‘BUY’ on HCLT, Infosys and TCS and ‘Accumulate’ on Wipro,
with a target price of Rs550, Rs3,090, Rs1,230 and Rs410, respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Performance ahead of low running expectation has set the tone for Tier-1 Indian IT
Services (TCS, Infosys, Wipro, HCLT). Volume growth in mid-single digit along with
margin impetus from rupee depreciation has pushed margins. The deal wins
indicates little trouble for Tier-1. Moreover, better-than-expected result for global
tech major and deal flow (TPI) in Q3CY11 further reaffirms strength. We remain
confident 20%+USD revenue growth. We reiterate ‘BUY’ on HCLT, Infosys and TCS.
Performance exceeded low running expectation: After quarters of
underperformance, Wipro led the growth pack reporting 4.6% QoQ (@cc 5.5%)
growth, followed by TCS 4.7% QoQ (@cc 5.2%), Infosys 4.5% QoQ (@cc 5%) and
HCLT lagged with 4.1% QoQ (@cc 5.1%) growth. The volume growth for Tier-1
was 5.3% QoQ, in-line with our view of mid-single-digit growth, aided by Wipro
(6.0%), TCS (5.8%), Infosys (4.4%) and HCLT (4%). However, the management
tone continues to be cautious on the overall environment.
What surprised us? Positively 1) Currency depreciation and operational
efficiency pushed margin expansion by 22bps QoQ 2) Rupee revenue growth
was 7.5% QoQ, whereas USD revenue growth was 4.5% QoQ 3) Blended pricing
muted QoQ for Tier-1 4) 190 new clients added by Tier-1, strongest in the last 23
quarters 5) Lateral hiring de-grow QoQ for the first time in last nine quarters 6)
Total employee grew by 5.5% QoQ, in-line with volume growth 7) Onsite
revenue contribution grew by 7bps, 8th consecutive quarter of uptick (excluding
OND-10) 8) Total active clients grew by 76 clients for Tier-1, strongest in last 13
quarters. Negatively 1) PAT Margin decline of 74bps QoQ, due to forex loss 2)
Commentary on deal pipeline continues to be cautious 3) Top-10 clients grew by
3.8% QoQ, 4th consecutive quarter of slower than overall growth 4) Revenue
productivity (Revenue/Billed man-months) declined by -0.7% QoQ.
Fresher hiring for FY13: Infosys and TCS has guided for 23k and 45 fresher hiring
guidance for FY13, respectively. The guidance for Infosys looks conservative.
What to expect? 1) We expect deal pipeline to improve further 2) We expect
EBITDA margin to be stable as currency fluctuates and companies absorb cost 3)
We see attrition and cost pressure easing out further.
Better than expected result from Accenture, Capgemini, Cognizant, and Logica:
Global IT Services majors have reported quarterly results ahead of consensus,
expectation reaffirming strength in demand.
Remain positive on Tier‐1: We reiterate our positive stance on Tier-1. We also
revise our estimates upward by 2-5% for FY12 and FY13 due to weaker rupee.
We reiterate our ‘BUY’ on HCLT, Infosys and TCS and ‘Accumulate’ on Wipro,
with a target price of Rs550, Rs3,090, Rs1,230 and Rs410, respectively.
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