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India IT Services Sector----------------------------------------------------- Maintain OVERWEIGHT
IBM June-11 results: unexciting growth in developed markets, discretionary spend
● IBM reported its 2Q FY12/11 results overnight. We analyse global
services business of IBM to deduce trends for Indian IT services.
● Overall services revenues grew 2% YoY versus 3% YoY growth
(cc terms) in the previous quarter. Global Technology Services
sub-segment grew 3% YoY (cc terms), same as last quarter,
Global Business Services sub-segment which is more
discretionary grew by just 1% YoY versus 3% YoY (cc terms) in
previous quarter
● Both revenues and signings increase was skewed towards
‘growth markets’ (BRIC countries, Africa, etc). Services revenue
grew 10% YoY in ‘growth markets’ and 2% YoY overall (cc terms).
Services backlog in these markets was up 50% YoY at actual
rates.
● Unexciting growth in discretionary spend and in the developed
markets reinforces our cautious view. We believe that Infosys,
TCS are fairly priced at 18-20x one-year forward EPS. Wipro and
HCLT are our preferred picks, given their valuation discount (20-
25% vs Infosys) and a greater probability of positive surprise
versus larger peers.
IBM reported its 2Q FY12/11 results overnight. We analyse global
services business of IBM to deduce trends for Indian IT services.
Services revenue growth slows, dragged by discretionary
spend slowdown
IBM reported overall services revenue growth of 2% YoY in cc terms.
While the Global Technology Services (GTS) sub-segment grew 3%
YoY in cc terms, same as last quarter; Global Business Services
(GBS) sub-segment which is more discretionary grew by just 1%YoY
in cc terms.
Within GBS, application outsourcing grew 4%YoY in cc terms
whereas consulting and systems integration, which includes
consulting, AMS systems integration and the US federal business was
flat in cc terms.
Revenue increase from ‘growth markets’, increasing share
Services revenue grew 10% YoY in ‘growth markets’ and 2% YoY
overall (cc terms). In GTS, ‘growth markets’ (BRIC countries, Africa,
etc) grew 10% YoY in cc terms, versus just 3% YoY growth in cc
terms for the entire GTS subsegment. In GBS, ‘growth markets’ grew
10% YoY in cc terms while ‘major markets’ revenue was down 1%
YoY in cc terms.
Management also indicated that growth was driven by increasing
share in GTS outsourcing in both the ‘growth markets’ and ‘major
markets’.
For the consolidated company, North America revenue grew 8% YoY
in cc terms versus growth of 3% YoY in cc terms for Asia and Europe.
Signings increase also oriented towards ‘growth markets’,
non-discretionary spend
IBM’s services backlog grew to by US$2 bn to US$144 bn. Total
services signings grew 8% in cc terms. Signings in the transactional
sub-segment, which is more discretionary in nature grew slightly
slower, at 7% in cc terms.
Management mentioned that services backlog in ‘growth markets’ was
up 50% at actual rates over the last two years. It explained that this
was driven by expansion into new markets and build out of IT
infrastructure in these regions.
Readthrough for Indian IT services
Unexciting growth in discretionary spend and in the developed
markets reinforces our cautious view. While we do not think that our
FY12 $-revenue growth estimates of 21%/28% for Infosys, TCS are at
risk; there may not be significant upside to these numbers either.
Further, valuations are also not cheap as these stocks are trading at
18-20x one-year forward EPS.
Wipro and HCL Tech are our preferred picks, given their valuation
discount (20-25% versus Infosys) and a greater probability of positive
surprise versus larger peers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India IT Services Sector----------------------------------------------------- Maintain OVERWEIGHT
IBM June-11 results: unexciting growth in developed markets, discretionary spend
● IBM reported its 2Q FY12/11 results overnight. We analyse global
services business of IBM to deduce trends for Indian IT services.
● Overall services revenues grew 2% YoY versus 3% YoY growth
(cc terms) in the previous quarter. Global Technology Services
sub-segment grew 3% YoY (cc terms), same as last quarter,
Global Business Services sub-segment which is more
discretionary grew by just 1% YoY versus 3% YoY (cc terms) in
previous quarter
● Both revenues and signings increase was skewed towards
‘growth markets’ (BRIC countries, Africa, etc). Services revenue
grew 10% YoY in ‘growth markets’ and 2% YoY overall (cc terms).
Services backlog in these markets was up 50% YoY at actual
rates.
● Unexciting growth in discretionary spend and in the developed
markets reinforces our cautious view. We believe that Infosys,
TCS are fairly priced at 18-20x one-year forward EPS. Wipro and
HCLT are our preferred picks, given their valuation discount (20-
25% vs Infosys) and a greater probability of positive surprise
versus larger peers.
IBM reported its 2Q FY12/11 results overnight. We analyse global
services business of IBM to deduce trends for Indian IT services.
Services revenue growth slows, dragged by discretionary
spend slowdown
IBM reported overall services revenue growth of 2% YoY in cc terms.
While the Global Technology Services (GTS) sub-segment grew 3%
YoY in cc terms, same as last quarter; Global Business Services
(GBS) sub-segment which is more discretionary grew by just 1%YoY
in cc terms.
Within GBS, application outsourcing grew 4%YoY in cc terms
whereas consulting and systems integration, which includes
consulting, AMS systems integration and the US federal business was
flat in cc terms.
Revenue increase from ‘growth markets’, increasing share
Services revenue grew 10% YoY in ‘growth markets’ and 2% YoY
overall (cc terms). In GTS, ‘growth markets’ (BRIC countries, Africa,
etc) grew 10% YoY in cc terms, versus just 3% YoY growth in cc
terms for the entire GTS subsegment. In GBS, ‘growth markets’ grew
10% YoY in cc terms while ‘major markets’ revenue was down 1%
YoY in cc terms.
Management also indicated that growth was driven by increasing
share in GTS outsourcing in both the ‘growth markets’ and ‘major
markets’.
For the consolidated company, North America revenue grew 8% YoY
in cc terms versus growth of 3% YoY in cc terms for Asia and Europe.
Signings increase also oriented towards ‘growth markets’,
non-discretionary spend
IBM’s services backlog grew to by US$2 bn to US$144 bn. Total
services signings grew 8% in cc terms. Signings in the transactional
sub-segment, which is more discretionary in nature grew slightly
slower, at 7% in cc terms.
Management mentioned that services backlog in ‘growth markets’ was
up 50% at actual rates over the last two years. It explained that this
was driven by expansion into new markets and build out of IT
infrastructure in these regions.
Readthrough for Indian IT services
Unexciting growth in discretionary spend and in the developed
markets reinforces our cautious view. While we do not think that our
FY12 $-revenue growth estimates of 21%/28% for Infosys, TCS are at
risk; there may not be significant upside to these numbers either.
Further, valuations are also not cheap as these stocks are trading at
18-20x one-year forward EPS.
Wipro and HCL Tech are our preferred picks, given their valuation
discount (20-25% versus Infosys) and a greater probability of positive
surprise versus larger peers.
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