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4QFY12E preview – a soft quarter, ‘cautious near-term’ commentary likely. We
expect a soft albeit in-line, given the mid-quarter caution expressed by various companies,
4QFY12E for the Indian IT services names. We anticipate a reasonably confident FY2013E
revenue outlook even as June 2012 quarter revenue outlook could have cautious
undertones. Infosys will likely guide, and in that case guide for a 9-12% US$ revenue
growth and EPS of Rs159-166 for FY2013E. Even as we remain largely positive from a 12-
month perspective, we would use any run-up ahead of results to trim positions.
March 2012 likely to be a subdued quarter for most companies barring HEXW and WPRO
Delays in discretionary project starts, lower-than-normal spend/budget ratio, sporadic pricing
pressure, and visa challenges are likely to result in a quarter of subdued sequential revenue growth
for the Indian IT services names. We expect 0.8-3% qoq US$ revenue growth for the Tier-I names,
aided by 25-50 bps of cross-currency uplift. Wipro will likely report the highest sequential revenue
growth within the Tier-I pack. Qoq revenue growth band is likely to be wider among the Tier-II
companies, with Hexaware likely to lead the pack with 4%+ qoq growth and Tech Mahindra at
the other end with a likely revenue decline of 2% sequentially. We also expect sequential margin
decline across companies on account of Re appreciation and low volume growth (dip in utilization).
Infosys guidance – expect single-digit US$ revenue growth guidance for FY2013E at the lower end
Notwithstanding our recent comment (which drove some serious discussion on this aspect on the
Street in the past couple of weeks) exploring the possibility of Infosys not guiding this year, we
repeat that we expect the company to guide. We do anticipate a wider-than-usual range as well as
a good dose of caution built into the guidance. Our base case expectation would be a 9-12% US$
revenue growth guidance and an EPS guidance of Rs159-166 for FY2013E. We assume a Re/US$
rate of 51 and a yoy margin decline of 50-100 bps in deriving our base case EPS assumption (see
Exhibit 1 for details). A 9-12% US$ revenue growth would demand a 2.5-3.3% revenue CQGR
from 1Q-4QFY13E. Infosys will likely guide for a 2-3% qoq revenue growth for 1QFY13E.
Key factors to watch out for
Factors we would watch closely in the 4QFY12 earnings reports and management comments –
` FY2013E revenue outlook – Infosys’ full-year/ Jun 2012 quarter guidance and Jun 2012
quarter guidance from Wipro, Hexaware etc. are the most obvious monitorables on this front.
We would also watch out for commentary on discretionary project starts, spend/budget ratio
for 1QCY12E versus earlier years, hiring numbers/ guidance and the final picture of CY2012E IT
budgets across the client base.
` Pricing trends and commentary – we would evaluate these to assess three factors – (1)
pricing discipline in the industry, (2) general pricing outlook, and (3) specific pricing pressure
within the US BFS sub-vertical; recent news flow suggested increased price reduction demands
from a few large clients within this sub-vertical.
` Comments on market share gain hypothesis and macro/micro dichotomy – sustained
strong revenue outlook from Accenture and cautious commentary from India-listed Tier-Is has
been at odds with the normal market share gain theory for the Indian names. We would look
out for any comments on this aspect and also the macro/micro dichotomy (increasingly cautious
outlook from Indian IT services companies amid improving macro outlook)
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