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Revisiting estimates factoring demand & currency
After the downgrade of credit rating of US, the prospects of
good growth in FY13 were dismal which forced us to revise
our business volume estimates in our earlier report
(“Rebound expected after medium term pressures” dated 22
Aug 2011). However, then tech stocks were beaten and
valuations were attractive and we continued to be positive on
the sector with BUY rating on tier-1 stocks viz. Infosys, TCS
and Wipro and HCL Tech. All except HCL Tech have given
around 23-26% absolute return in approx. last four months.
The current business environment continues to be uncertain
which will further put pressure on discretionary IT spending
and USD revenue growth in FY13. We further revise
downwards our volume growth estimates but it is likely to be
in the range of 12-15%YoY for tier-1 firms. However, weaker
rupee will suppress negative impact of low volume growth.
Discretionary spending falling more than expected– There
are delays in decision making for discretionary spending. We
revise volume estimates downwards with higher decline for
HCL Tech and Infosys for FY13.
Outsourcing trend maintained positive, new client addition
healthy, pricing intact
The new order bookings for outsourcing has shown sustained
growth for Accenture based on latest results. Also, Indian IT
firms are getting more enquiries from clients for outsourcing.
The new client addition has been strong in last couple of years
post the Lehman crisis in 2008, for all tier-1 firms.
Restating that attrition and salary increments will be on
downtrend - The attrition rate is expected to be lower going
ahead. Salary increments will be lower in FY13. According to
companies, salary levels for freshers are similar to last year.
VALUATIONS AND RECOMMENDATION
The uncertainties on global front has decreased the prospects
of technology spending in FY13 but outsourcing is expected to
be on a positive trend and tier-1 players are expected to post
double digit dollar revenue growth. Rupee depreciation will
help rupee revenue growth & margins. The value proposition
of Indian IT firms remains intact as enquiries for outsourcing
increases and more verticals & geographies open up along
with growth in the main market of US. We have further
lowered volume estimates and revised INR/USD rate to 48 for
FY12 & 49 for FY13 (earlier 47.5 for FY12 & 46.5 for FY13)
leading to change in earnings estimates by 3-6% for FY13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revisiting estimates factoring demand & currency
After the downgrade of credit rating of US, the prospects of
good growth in FY13 were dismal which forced us to revise
our business volume estimates in our earlier report
(“Rebound expected after medium term pressures” dated 22
Aug 2011). However, then tech stocks were beaten and
valuations were attractive and we continued to be positive on
the sector with BUY rating on tier-1 stocks viz. Infosys, TCS
and Wipro and HCL Tech. All except HCL Tech have given
around 23-26% absolute return in approx. last four months.
The current business environment continues to be uncertain
which will further put pressure on discretionary IT spending
and USD revenue growth in FY13. We further revise
downwards our volume growth estimates but it is likely to be
in the range of 12-15%YoY for tier-1 firms. However, weaker
rupee will suppress negative impact of low volume growth.
Discretionary spending falling more than expected– There
are delays in decision making for discretionary spending. We
revise volume estimates downwards with higher decline for
HCL Tech and Infosys for FY13.
Outsourcing trend maintained positive, new client addition
healthy, pricing intact
The new order bookings for outsourcing has shown sustained
growth for Accenture based on latest results. Also, Indian IT
firms are getting more enquiries from clients for outsourcing.
The new client addition has been strong in last couple of years
post the Lehman crisis in 2008, for all tier-1 firms.
Restating that attrition and salary increments will be on
downtrend - The attrition rate is expected to be lower going
ahead. Salary increments will be lower in FY13. According to
companies, salary levels for freshers are similar to last year.
VALUATIONS AND RECOMMENDATION
The uncertainties on global front has decreased the prospects
of technology spending in FY13 but outsourcing is expected to
be on a positive trend and tier-1 players are expected to post
double digit dollar revenue growth. Rupee depreciation will
help rupee revenue growth & margins. The value proposition
of Indian IT firms remains intact as enquiries for outsourcing
increases and more verticals & geographies open up along
with growth in the main market of US. We have further
lowered volume estimates and revised INR/USD rate to 48 for
FY12 & 49 for FY13 (earlier 47.5 for FY12 & 46.5 for FY13)
leading to change in earnings estimates by 3-6% for FY13.
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