Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INFORMATION TECHNOLOGY
The quarter has seen steep fall in the rupee (v/s USD), which is expected to
positively impact the revenues and operating profits of most companies.
We expect companies under our coverage to report a sequential revenue
growth of about 11%, driven by higher volumes and favourable currency
movement. This is a seasonally weak quarter for the IT sector. Volumes for
the Top 4 companies are expected to rise between 3% - 5%. The cross
currency volatility may impact USD revenues by about 50bps - 150bps QoQ
for the top companies. However, the rupee depreciation v/s USD (~11%
average) should help growth of INR revenues. Average realizations are
expected to have remained stable QoQ.
EBIDTA margins are expected to be higher on a QoQ basis on the back of the
rupee depreciation and volume increases. With no salary increments for
most companies (except Mahindra Satyam) we do not expect any impact on
margins. We expect margins to improve and EBIDTA to increase by 19%
QoQ.
Companies follow different hedging strategies and different accounting
policies. This may lead to corresponding impact of currency volatility on
other income. We also are not aware of what part of the currency benefits
will be re-invested by companies in business generation activities.
Consequently, PAT is expected to rise by about 18% for companies under
our coverage (19% for Top 4).
The guidance from Infosys will be important. We expect volume growth
guidance (implied from USD revenue guidance) to be maintained. The
uncertain macro environment may lead to continued conservatism from the
management. However, the USD growth guidance may be pared down a bit
due to cross-currency impact. However, because of the rupee depreciation,
the INR guidance will be scaled up, we opine. Normally Infosys gives
guidance at the exchange rate prevailing at the end of the just-concluded
quarter.
Among other things, we will also watch out for :
a) Early indications on CY12 budgets
b) Pricing declines, if any and comments on the same,
c) Further insights into sustainability of discretionary spends, etc.,
d) hiring trends and
e) Comments on new opportunities like Cloud Computing, etc
We maintain our optimistic view on the medium-to-long term prospects of
the sector. Over the medium term, we expect large caps to out-perform as
they are better equipped to counter the impact, if any, of any variation in
the demand scenario. We will keep a close watch on the evolving macro
scene in developed economies, where recent economic developments are
concerning.
Infosys and TCS remain our preferred large-cap picks. In mid-caps, we prefer
NIIT Technologies and KPIT Cummins. Mphasis is not covered here because
quarter ends in January.
3% - 5% sequential volume growth expected for top tier companies
We expect top-tier companies to report volume growth of about 3% - 5% QoQ, in a
seasonally weak quarter. The expected growth is on the back of higher demand and
market share. We understand that, despite the weak macro scene, clients have not
cut back on any IT spends and there are very few instances of delays. Indian companies
have been witnessing business flows and are likely gaining additional market
share.
While the order flows from US are expected to have grown, we will closely hear
management comments on the potential order flows from Europe, where economic
news has been a source of worry.
While volumes are expected to rise QoQ, we expect realizations to be largely stable.
However, we will closely watch out for potential price reductions and management
comments regarding these will be of importance to us.
Impact of cross currency movements
The Indian rupee has depreciated v/s USD (11%), Euro (6%) and GBP (8.5%). The
USD has appreciated v/s Euro (4.4%) and GBP (3.5%). To that extent, USD-based
revenues are expected to be impacted by 50bps - 150bps. However, INR-based revenues
for the quarter are expected to be positively impacted to the extent of 800 -
1000bps for top - tier companies.
For the Top 4 companies, we expect revenues to be about 12% higher in INR terms
and so also for the coverage universe.
Margins expected to be higher
We expect margins to be higher sequentially. Volume growth and the rupee appreciation
(v/s USD) are expected to help improve profitability QoQ. Cost efficiencies
are also expected to help. Within the Top 4, HCLT will see lower profitability improvement
due to one-time employee payments, we believe. Mahindra Satyam has
given salary hikes during the quarter , which will restrict margin improvement.
Volatility in other income
With sharp movements in exchange rates during the quarter, the impact on companies
may be varied. This will also be influenced by the hedging strategies and accounting
methods followed. Moreover, several companies may re-invest a part of
the currency gains into the business for revenue generation. Consequently, PAT is
expected to grow by about 18% over the previous quarter for our coverage companies
and by 19% for the Top 4.
Factors to watch
The guidance from Infosys will be important. The management has been consistent
in saying that, FY12 will be a normal year as far as demand is concerned and that
there have been no budget cuts from clients. However, it has also cautioned that,
there have been delays in decision making and the uncertainty has increased, of
late. Management comments on the macro scene and client spending will gain additional
importance.
Apart from Infosys' guidance, we will closely track early indications on CY12 budgets,
Pricing declines, if any and comments on the same. Further insights into
sustainability of discretionary spends, hiring trends and comments on new opportunities
like Cloud Computing, etc would also be keenly watched.
We will closely watch the progress made by and expectations of the various companies
in new areas of opportunities. Cloud Computing provides a big potential and
order flows in this business will be of interest to us.
Companies are also now increasingly looking at moving to newer types of pricing
models like outcome-based pricing, transaction-based pricing, etc. Trends in these
will be of interest to us from the point-of-view of margin protection and improvement.
Pricing is expected to have largely stabilized during the quarter and we will watch
out for comments on any potential pricing declines from clients.
Remain positive on medium-to-long term prospects; to watch
macro scene closely
We maintain our positive bias on sector fundamentals over the medium-to-long
term. In the event of a slow recovery in the global economy, it should reflect in increased
business for Indian IT vendors. Indian companies have likely been able to
increase their market share in the global outsourcing pie.
However, the recent economic data from developed economies, especially from
Europe, has not been encouraging. Any major weakness in these economies can
impact demand for Indian IT vendors.
Larger companies are better-equipped to handle any variation in demand. We prefer
Infosys and TCS in the large caps. NIIT Technologies and KPIT Cummins are the
preferred mid cap stocks based on vertical focus and expertise.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INFORMATION TECHNOLOGY
The quarter has seen steep fall in the rupee (v/s USD), which is expected to
positively impact the revenues and operating profits of most companies.
We expect companies under our coverage to report a sequential revenue
growth of about 11%, driven by higher volumes and favourable currency
movement. This is a seasonally weak quarter for the IT sector. Volumes for
the Top 4 companies are expected to rise between 3% - 5%. The cross
currency volatility may impact USD revenues by about 50bps - 150bps QoQ
for the top companies. However, the rupee depreciation v/s USD (~11%
average) should help growth of INR revenues. Average realizations are
expected to have remained stable QoQ.
EBIDTA margins are expected to be higher on a QoQ basis on the back of the
rupee depreciation and volume increases. With no salary increments for
most companies (except Mahindra Satyam) we do not expect any impact on
margins. We expect margins to improve and EBIDTA to increase by 19%
QoQ.
Companies follow different hedging strategies and different accounting
policies. This may lead to corresponding impact of currency volatility on
other income. We also are not aware of what part of the currency benefits
will be re-invested by companies in business generation activities.
Consequently, PAT is expected to rise by about 18% for companies under
our coverage (19% for Top 4).
The guidance from Infosys will be important. We expect volume growth
guidance (implied from USD revenue guidance) to be maintained. The
uncertain macro environment may lead to continued conservatism from the
management. However, the USD growth guidance may be pared down a bit
due to cross-currency impact. However, because of the rupee depreciation,
the INR guidance will be scaled up, we opine. Normally Infosys gives
guidance at the exchange rate prevailing at the end of the just-concluded
quarter.
Among other things, we will also watch out for :
a) Early indications on CY12 budgets
b) Pricing declines, if any and comments on the same,
c) Further insights into sustainability of discretionary spends, etc.,
d) hiring trends and
e) Comments on new opportunities like Cloud Computing, etc
We maintain our optimistic view on the medium-to-long term prospects of
the sector. Over the medium term, we expect large caps to out-perform as
they are better equipped to counter the impact, if any, of any variation in
the demand scenario. We will keep a close watch on the evolving macro
scene in developed economies, where recent economic developments are
concerning.
Infosys and TCS remain our preferred large-cap picks. In mid-caps, we prefer
NIIT Technologies and KPIT Cummins. Mphasis is not covered here because
quarter ends in January.
3% - 5% sequential volume growth expected for top tier companies
We expect top-tier companies to report volume growth of about 3% - 5% QoQ, in a
seasonally weak quarter. The expected growth is on the back of higher demand and
market share. We understand that, despite the weak macro scene, clients have not
cut back on any IT spends and there are very few instances of delays. Indian companies
have been witnessing business flows and are likely gaining additional market
share.
While the order flows from US are expected to have grown, we will closely hear
management comments on the potential order flows from Europe, where economic
news has been a source of worry.
While volumes are expected to rise QoQ, we expect realizations to be largely stable.
However, we will closely watch out for potential price reductions and management
comments regarding these will be of importance to us.
Impact of cross currency movements
The Indian rupee has depreciated v/s USD (11%), Euro (6%) and GBP (8.5%). The
USD has appreciated v/s Euro (4.4%) and GBP (3.5%). To that extent, USD-based
revenues are expected to be impacted by 50bps - 150bps. However, INR-based revenues
for the quarter are expected to be positively impacted to the extent of 800 -
1000bps for top - tier companies.
For the Top 4 companies, we expect revenues to be about 12% higher in INR terms
and so also for the coverage universe.
Margins expected to be higher
We expect margins to be higher sequentially. Volume growth and the rupee appreciation
(v/s USD) are expected to help improve profitability QoQ. Cost efficiencies
are also expected to help. Within the Top 4, HCLT will see lower profitability improvement
due to one-time employee payments, we believe. Mahindra Satyam has
given salary hikes during the quarter , which will restrict margin improvement.
Volatility in other income
With sharp movements in exchange rates during the quarter, the impact on companies
may be varied. This will also be influenced by the hedging strategies and accounting
methods followed. Moreover, several companies may re-invest a part of
the currency gains into the business for revenue generation. Consequently, PAT is
expected to grow by about 18% over the previous quarter for our coverage companies
and by 19% for the Top 4.
Factors to watch
The guidance from Infosys will be important. The management has been consistent
in saying that, FY12 will be a normal year as far as demand is concerned and that
there have been no budget cuts from clients. However, it has also cautioned that,
there have been delays in decision making and the uncertainty has increased, of
late. Management comments on the macro scene and client spending will gain additional
importance.
Apart from Infosys' guidance, we will closely track early indications on CY12 budgets,
Pricing declines, if any and comments on the same. Further insights into
sustainability of discretionary spends, hiring trends and comments on new opportunities
like Cloud Computing, etc would also be keenly watched.
We will closely watch the progress made by and expectations of the various companies
in new areas of opportunities. Cloud Computing provides a big potential and
order flows in this business will be of interest to us.
Companies are also now increasingly looking at moving to newer types of pricing
models like outcome-based pricing, transaction-based pricing, etc. Trends in these
will be of interest to us from the point-of-view of margin protection and improvement.
Pricing is expected to have largely stabilized during the quarter and we will watch
out for comments on any potential pricing declines from clients.
Remain positive on medium-to-long term prospects; to watch
macro scene closely
We maintain our positive bias on sector fundamentals over the medium-to-long
term. In the event of a slow recovery in the global economy, it should reflect in increased
business for Indian IT vendors. Indian companies have likely been able to
increase their market share in the global outsourcing pie.
However, the recent economic data from developed economies, especially from
Europe, has not been encouraging. Any major weakness in these economies can
impact demand for Indian IT vendors.
Larger companies are better-equipped to handle any variation in demand. We prefer
Infosys and TCS in the large caps. NIIT Technologies and KPIT Cummins are the
preferred mid cap stocks based on vertical focus and expertise.
No comments:
Post a Comment