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Rupee hits all-time low; we upgrade FY13E EPS 8-11%
We expect the sharp fall in the rupee (an all-time low of 52.73 vs the US
dollar on 22 November 2011) to provide strong tailwind to Indian IT firms in
2HFY12 and FY13. Owing to lower currency resets, we upgrade FY13 EPS
estimates for top-tier IT firms by 8-11%. Our revised INR-USD estimates for
FY12 and FY13 are Rs48.40 and Rs51, respectively, (Rs46.13 and Rs46.38
earlier). We thus revise upwards our target prices and upgrade all the
stocks under our coverage universe to Hold from Sell. Our revised TP on
Tata Consultancy Services is Rs1,114 (Rs1,008 earlier), Infosys Rs2,745
(Rs2,378), Wipro Rs377 (Rs345) and HCL Technologies Rs437 (Rs394).
We upgrade revenue, EBITDA and EPS estimates on lower currency resets,
but downgrade dollar revenue estimates on greater uncertainty globally:
Given the steep depreciation of the rupee against the greenback over the past
few weeks, touching an all-time low of 52.73 on 22 November 2011, we reset our
currency assumptions, factoring in average rupee-dollar levels of Rs50 and Rs52
in 3QFY12 and 4QFY12, respectively, Rs 48.41 for FY12 and Rs51 for FY13.
This leads us to upgrade FY13 earnings of all top-tier IT firms by 8-11%. Even for
FY12, we upgrade earnings estimates although it should be noted that EPS
upgrades are lower than EBITDA upgrades owing to likely forex losses on
hedging in the wake of the rupee’s weakness in 3QFY12, which could continue in
4QFY12. We believe the rupee’s fall is significantly beneficial for Indian IT firms,
particularly on the margin front and note that our FY12 and FY13 EBITDA
upgrades for all top-tier IT firms are higher than our revenue upgrades.
Nonetheless, it should be noted that even as we upgrade earnings estimates
given lower currency resets, we slightly downgrade dollar revenue estimates,
given the worsening macro-economic environment and heightened uncertainty.
Tata Consultancy Services: We upgrade the stock to Hold from Sell with a TP
of Rs1,114 (Rs1,008 earlier), implying a 4.8% upside. We upgrade FY13 rupee
revenue, EBITDA and EPS estimates by 7.1%, 7.9% and 10.5%, respectively
(corresponding FY12 figures are 4.5%, 4.6% and 3.1%). However, we slightly cut
our FY13 dollar revenue estimate by 2.6% (no change for FY12).
Infosys: We upgrade the stock to Hold from Sell with a TP of Rs2,746 (Rs2,381
earlier), implying a 3.6% upside. We upgrade FY13 rupee revenue, EBITDA and
EPS estimates by 8.5%, 9.8% and 8.3%, respectively (corresponding figures for
FY12 are 3%, 4.2% and 0.2%). However, we slightly cut our FY13 dollar revenue
estimate by 0.8% (0.6% cut for FY12).
Wipro: We upgrade the stock to Hold from Sell with a TP of Rs377 (Rs345
earlier), implying a 3.3% upside. We upgrade FY13 consolidated rupee revenue,
EBITDA and EPS estimates by 7%, 10.6% and 8.9%, respectively
(corresponding figures for FY12 are 3.4%, 6% and 4.2%). However, we slightly
cut our FY13 dollar revenue estimate for the combined IT services business by
0.3% (0.4% cut for FY12).
HCL Technologies: We upgrade the stock to Hold from Sell with a TP of Rs437
(Rs394 earlier), implying a 13.1% upside. We upgrade FY13 rupee revenue,
EBITDA and EPS estimates by 9.4%, 13.1% and 10%, respectively
(corresponding figures for FY12 are 4.9%, 7.1% and 2.6%). However, we slightly
cut our FY13 dollar revenue estimate by 0.5% (no change for FY12).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rupee hits all-time low; we upgrade FY13E EPS 8-11%
We expect the sharp fall in the rupee (an all-time low of 52.73 vs the US
dollar on 22 November 2011) to provide strong tailwind to Indian IT firms in
2HFY12 and FY13. Owing to lower currency resets, we upgrade FY13 EPS
estimates for top-tier IT firms by 8-11%. Our revised INR-USD estimates for
FY12 and FY13 are Rs48.40 and Rs51, respectively, (Rs46.13 and Rs46.38
earlier). We thus revise upwards our target prices and upgrade all the
stocks under our coverage universe to Hold from Sell. Our revised TP on
Tata Consultancy Services is Rs1,114 (Rs1,008 earlier), Infosys Rs2,745
(Rs2,378), Wipro Rs377 (Rs345) and HCL Technologies Rs437 (Rs394).
We upgrade revenue, EBITDA and EPS estimates on lower currency resets,
but downgrade dollar revenue estimates on greater uncertainty globally:
Given the steep depreciation of the rupee against the greenback over the past
few weeks, touching an all-time low of 52.73 on 22 November 2011, we reset our
currency assumptions, factoring in average rupee-dollar levels of Rs50 and Rs52
in 3QFY12 and 4QFY12, respectively, Rs 48.41 for FY12 and Rs51 for FY13.
This leads us to upgrade FY13 earnings of all top-tier IT firms by 8-11%. Even for
FY12, we upgrade earnings estimates although it should be noted that EPS
upgrades are lower than EBITDA upgrades owing to likely forex losses on
hedging in the wake of the rupee’s weakness in 3QFY12, which could continue in
4QFY12. We believe the rupee’s fall is significantly beneficial for Indian IT firms,
particularly on the margin front and note that our FY12 and FY13 EBITDA
upgrades for all top-tier IT firms are higher than our revenue upgrades.
Nonetheless, it should be noted that even as we upgrade earnings estimates
given lower currency resets, we slightly downgrade dollar revenue estimates,
given the worsening macro-economic environment and heightened uncertainty.
Tata Consultancy Services: We upgrade the stock to Hold from Sell with a TP
of Rs1,114 (Rs1,008 earlier), implying a 4.8% upside. We upgrade FY13 rupee
revenue, EBITDA and EPS estimates by 7.1%, 7.9% and 10.5%, respectively
(corresponding FY12 figures are 4.5%, 4.6% and 3.1%). However, we slightly cut
our FY13 dollar revenue estimate by 2.6% (no change for FY12).
Infosys: We upgrade the stock to Hold from Sell with a TP of Rs2,746 (Rs2,381
earlier), implying a 3.6% upside. We upgrade FY13 rupee revenue, EBITDA and
EPS estimates by 8.5%, 9.8% and 8.3%, respectively (corresponding figures for
FY12 are 3%, 4.2% and 0.2%). However, we slightly cut our FY13 dollar revenue
estimate by 0.8% (0.6% cut for FY12).
Wipro: We upgrade the stock to Hold from Sell with a TP of Rs377 (Rs345
earlier), implying a 3.3% upside. We upgrade FY13 consolidated rupee revenue,
EBITDA and EPS estimates by 7%, 10.6% and 8.9%, respectively
(corresponding figures for FY12 are 3.4%, 6% and 4.2%). However, we slightly
cut our FY13 dollar revenue estimate for the combined IT services business by
0.3% (0.4% cut for FY12).
HCL Technologies: We upgrade the stock to Hold from Sell with a TP of Rs437
(Rs394 earlier), implying a 13.1% upside. We upgrade FY13 rupee revenue,
EBITDA and EPS estimates by 9.4%, 13.1% and 10%, respectively
(corresponding figures for FY12 are 4.9%, 7.1% and 2.6%). However, we slightly
cut our FY13 dollar revenue estimate by 0.5% (no change for FY12).
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