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Focus squarely on CY12 IT budgets
IT budgets likely to signal a move away from discretionary
Commentary on CY12 IT budgets is likely to indicate a shift away from
discretionary to getting more out of flat IT budgets. We expect
difference in commentary across our coverage on Infosys and HCL
Tech pointing to tightening of discretionary budgets. We expect
Infosys to cut its FY12 USD guidance range from 17.1% to 19.1% to
16.5% to 17.5%. With the stock price having run up beyond INR2,800,
we believe the stock does not price in the risk of a 110bps cut in USD
guidance. The recent miss from Oracle (on middleware, database and
application new license sales) is also likely to make managements
increasingly cautious on discretionary budgets and Infosys with its
31% exposure is poorly placed.
Negative cross currency on USD revenue; INR a tailwind
We expect a negative impact of 100bps to 220bps (QoQ) on the USD
revenue growth from cross currency headwinds. INR has depreciated
by around 11% on a period average basis QoQ. INR revenue is likely to
be upwards of 11% QoQ across most of our coverage stocks. Across
the coverage, we expect QoQ volumes to grow in a range capped at
5%. We expect Infosys and TCS EBITDA margins to improve by 160bps
and 140 bps respectively on currency. Other than Wipro (which
reports forex above the line), all other companies will report forex
losses with TCS losses likely to stand at INR4.5bn. Infosys and HCL Tech
are best placed with the current currency rates on the forex losses
front.
Maintain IT as an OW; cut Infosys to a Neutral
We believe that the risk-reward is unfavourably stacked against Infosys
at current stock prices in spite of the currency tailwind and would
recommend cutting our OW position to Neutral. We continue to back
our IT OW through TCS and HCL Tech in spite of expectations of a
relatively soft quarter for HCL Tech (led by softness in enterprise
applications business). We believe a slew of deal wins and low
valuations will create a floor for the stock. TCS also remains our play on
the ‘cost take out’ slant of the CY12 IT budgets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Focus squarely on CY12 IT budgets
IT budgets likely to signal a move away from discretionary
Commentary on CY12 IT budgets is likely to indicate a shift away from
discretionary to getting more out of flat IT budgets. We expect
difference in commentary across our coverage on Infosys and HCL
Tech pointing to tightening of discretionary budgets. We expect
Infosys to cut its FY12 USD guidance range from 17.1% to 19.1% to
16.5% to 17.5%. With the stock price having run up beyond INR2,800,
we believe the stock does not price in the risk of a 110bps cut in USD
guidance. The recent miss from Oracle (on middleware, database and
application new license sales) is also likely to make managements
increasingly cautious on discretionary budgets and Infosys with its
31% exposure is poorly placed.
Negative cross currency on USD revenue; INR a tailwind
We expect a negative impact of 100bps to 220bps (QoQ) on the USD
revenue growth from cross currency headwinds. INR has depreciated
by around 11% on a period average basis QoQ. INR revenue is likely to
be upwards of 11% QoQ across most of our coverage stocks. Across
the coverage, we expect QoQ volumes to grow in a range capped at
5%. We expect Infosys and TCS EBITDA margins to improve by 160bps
and 140 bps respectively on currency. Other than Wipro (which
reports forex above the line), all other companies will report forex
losses with TCS losses likely to stand at INR4.5bn. Infosys and HCL Tech
are best placed with the current currency rates on the forex losses
front.
Maintain IT as an OW; cut Infosys to a Neutral
We believe that the risk-reward is unfavourably stacked against Infosys
at current stock prices in spite of the currency tailwind and would
recommend cutting our OW position to Neutral. We continue to back
our IT OW through TCS and HCL Tech in spite of expectations of a
relatively soft quarter for HCL Tech (led by softness in enterprise
applications business). We believe a slew of deal wins and low
valuations will create a floor for the stock. TCS also remains our play on
the ‘cost take out’ slant of the CY12 IT budgets.
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