IT - Q4FY12 Result Preview - Infosys to update on demand realities : Edelweiss PDF link

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Delayed decision making, slow ramp ups and Cognizant’s weak current quarter (Q1CY12) guidance (2.2% QoQ) coupled with strong outsourcing order bookings by Accenture (8.1% QoQ) have led to lot of speculation on actual demand scenario. We believe all eyes are now set on Infosys’ guidance for some clarity on the same. While some on the Street believe that Infosys’ guidance will at least match the high end of Nasscom’s range (11-14%) for FY13, we expect it to be 9-11%. Also, we expect Q4FY12 performance to be muted with top 4 players reporting sequential growth of only 1-3% in USD terms. We expect Infosys to post revenue decline of ~1.5% and earnings decline of ~4.7% on sequential basis in INR terms due to average INR/USD of 50.2 versus guided rate of 52.0 for the quarter.

Infosys guidance to set the tone

Currently, all eyes are on Infosys guidance with expectation of it matching at least high end of Nasscom’s guidance (11-14%). However, we believe the company will await more clarity on the demand environment as it moves into H2FY13, and will keep some cushion for outperformance. Thus, we expect it to guide USD revenue growth of 9-11% and INR EPS of 157-159 for FY13. 

          

Delayed decision making and project ramp ups to hit Q4FY12

For the quarter ending March 2012, we expect volume growth of 1-3% QoQ with HCLT and Wipro reporting the highest growth and Infosys the lowest. Reported pricing is likely to remain flat with slight decline in INR revenue and earnings number due to  ~2.2% average INR appreciation. EBITDA margins are likely to decline for both TCS and Infosys due to unfavourable currency movement and slightly lower volume growth. HCLT is likely to post 3% sequential revenue growth, followed by 2% growth by Wipro and 1.5% and 1% by TCS and Infosys, respectively, in USD terms. On EBIDTA margin front, we expect TCS Infosys and Wipro to post decline of 150bps, 110bps and 70bps, respectively, due to lower volume growth and INR appreciation vis-à-vis previous quarter.

Outlook: Growth to be back ended

We expect past delays in decision making that had postponed project ramp ups to not only have a marginal impact on overall FY13 revenue growth, but also to lead to back ended growth. While we believe an improving US economy and cost cutting pressures in the European geography will drive growth for Indian IT companies, we expect most of it to pick up only from Q2FY13. We also expect margin decline of 100bps on an average for large cap players due to high single digit wage hike (post pyramid rationalization adjustment) for FY13E.

IT - Q4FY12 Result Preview - Infosys to update on demand realities

Regards,