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http://www.icicidirect.com/mailimages/ICICIdirect_ConsolidatedResultPreview_Q4FY12E.pdf
Information Technology
ƒ Soft quarter, Infosys guidance to capture mindshare
We expect tier-I IT companies to report US$ revenue growth of 0.5-2.9%
led in part by modest volume growth & cross currency tailwinds
(average US$ rate depreciated 4.2% vs. the AU$, appreciated 2.6% vs.
the EUR and was flat relative to GBP). Rupee revenue growth range
could be -1.3% to 0.9% primarily led by 1-1.5% appreciation in the
average rupee rate. Preview discussions suggest that uncertainty over
the spending pattern of CY12E IT budgets persists despite finalisation of
budgets. Discretionary budget spend thrifts continue and companies
expect sponsors to release budget by mid April 2012. This implies
volume growth could accelerate in the back half of FY13E. We believe
Infosys could guide 12-14% US$ revenue growth & EPS range of |159-
164 for FY13E.
ƒ EBITDA margin to decline 46-185 bps for tier-I companies
Depending on the operating model, every 100 bps movement in the
rupee impacts operating margins by 25-40 bps. Inter-quarter, the
average rupee has appreciated 1.2% against the US$ and suggests a
likely operating margin impact of 30-50 bps for tier-I companies.
However, we expect EBITDA margins to decline 46-187 bps for tier-I
companies primarily due to a sharp dip in utilisation.
ƒ Varying quarterly performance: Wipro could lead; TechM to follow
Within the coverage universe companies, we expect Wipro and HCL
Technology to lead quarterly performance with 2.4% and 2.9% QoQ
US$ revenue growth coupled with flat and 46 bps decline in EBITDA
margins, respectively. Tech Mahindra could be at the other end of the
spectrum with 3.7% QoQ decline in US$ revenues led by decline in BT
contract and $5 million impact of Etisalat-DB contract. Noticeably, we
expect TechM’s EBITDA margins to decline 447 bps due to $10 million
write-offs from Etilasat-DB contract. From a vertical perspective, retail &
financial services could continue to be demand drivers as companies
invest for digital consumers, real-time analytics and regulatory
compliance while telecom continues to be tepid. We reiterate that
individual company performance across verticals could vary depending
on their offering and portfolio mix.
Company specific view
Company Remarks
eClerx Services
Ltd
We are modelling Q4FY12E revenues of | 132 crore (flat QoQ). Delay in IT spending
for select customers will impact revenue growth. EBITDA margins could decline 76
bps QoQ led by rupee appreciation and modest volume growth. This could likely lead
to a 16% QoQ decline in PAT
HCL Tech We expect US$ revenue growth of 2.9% QoQ driven by 2% volume growth & cross
currency benefit. Revenue growth could be equally split between IT & infrastructure
services while BPO could likely be soft. Rupee revenues could grow 0.2% QoQ
coupled with a 46 bps decline in EBITDA margins to 18%
Infosys We expect US$ revenues to grow 0.5% QoQ led by cross currency tailwinds while
rupee revenues could decline 1.3% QoQ led by ~1.2% QoQ appreciation in the
average rupee rate. EBIT margins will decline 120 bps to 29.9% led by flat volumes,
utilisation drop & rupee appreciation
Mahindra
Satyam
We expect US$ revenues to grow 0.4% QoQ while rupee revenues could decline
3.8% QoQ led by rupee appreciation. EBITDA margins could increase a modest 11
bps led by cost rationalisation and lower hiring offset by currency headwinds. Net
income could decline 30% led lower other income
Mastek We expect US$ revenues to grow 3.6% QoQ while | revenues are expected to grow
by 4% QoQ. We expect Mastek to report | 5.4 crore EBITDA led by revenue growth &
cost rationalisation. We expect the company to report | 1.1 crore loss vs. | 1.5 crore
in Q2FY12 led by improvement in operating metrics
Mindtree Ltd We expect US$ revenues to grow 0.9% QoQ led by volume growth (1%), currency
tailwinds offset by pricing headwinds. Rupee revenues could grow 1.2%. We are
modelling EBITDA margins will decline 38 bps led by rupee appreciation and modest
revenue growth
NIIT Ltd We expect 8% and 10% YoY growth in SLS and ILS business whereas the CLS
business could decline ~61% YoY to account for Element-K divestiture. Revenues
could decline ~28% YoY whereas EBITDA margins could decline 10 bps YoY due to
ILS EBITDA margin weakness
NIIT Tech We expect | revenues to grow by 5% QoQ. GIS, Insurance (Room Solutions) and BFS
vertical growth could be tepid. Rupee appreciation could impact revenues by ~| 4-
4.5 crore. We expect EBITDA margins to decline 20 bps to 17.8% vs. 18.0% in
Q3FY12 primarily due to rupee appreciation
Rolta We expect revenues to grow 1.9% QoQ coupled with EBITDA margin decline of 10
bps to 40.1% vs. 40.2% in Q2. Modest appreciation of the rupee could help curtail
losses on outstanding FCCBs
Sasken We expect Sasken to report | revenues of | 121.6 crore, 5.6% QoQ decline.
Management outlook on Nokia, telecom vertical IT spending and update on the
buyback process could be the key theme to watch in Q4 earnings
TCS We expect US$ revenues to grow 1.3% QoQ while rupee revenues could decline
0.1% QoQ led by rupee appreciation. EBIT margins could decline by 187 bps to 27.4%
vs. 29.3% in Q3FY12 led by rupee appreciation and utilisation dip. FY13E outlook on
revenue/ earnings, pricing & hiring guidance should be in investor focus
Tech Mahindra We expect US$ revenues to decline 3.7% QoQ led by BT (3.7% decline) and $5
million impact of Etisalat-DB contract. Rupee revenues may decline 2.8%. We expect
EBITDA margins to decline 447 bps to account for $10 million write-off from EtisalatDB contract. We are modelling consolidated PAT of | 159 crore and standalone PAT
of ~| 67 crore
Wipro We expect IT services revenues to grow 2.4% QoQ in US$ and 1.2% in INR.
Consolidated revenues could increase 1.5% QoQ. We are modelling flat EBIT margins
(20.8%) for IT & consolidated business (17.2%). Wipro could guide for 2-4% QoQ-CC
growth for Q1FY13E while comments related to the Uninor contract should be of
investor focus
Source: Company, ICICIdirect.com Research
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