IT - Seasonality, Cross Currency The Spoilsports - Result Preview Q3FY15 :: Edelweiss, link

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A seasonally weak quarter (due to furloughs and lower working days) coupled with cross currency impact (200-220bps) leads us to forecast moderate QoQ growth of 0.8-1.5% for the Top-4 IT players in Q3FY15. We expect Infosys and HCL Technologies (HCLT) to lead the pack with ~1.5% growth. Tata Consultancy Services (TCS) is likely to post 1% growth, while Wipro is likely to report 0.8% QoQ growth. However, we expect management commentaries to be positive on demand outlook owing to increased visibility on US markets and higher offshoring from Europe. We expect Infosys to cut its revenue guidance to 7-8% from 7-9% earlier to factor in the cross currency impact. Investors will keenly follow Infosys’ commentary on a detailed strategy and its impact on growth and margin. For the sector, we expect demand outlook, deal pipeline and budget commentaries for next year to be positive than last year on better visibility in US, higher offshoring in Europe and rising adoption of digital technologies.

Seasonality and cross-currency to take toll on revenue growth

In Q3FY15, USD appreciated 5.2%, 5.8% and 7.6% against GBP, EUR and AUD resulting in 200-220bps negative impact on USD revenues for the Top-4 IT players. This, along with Q3 seasonality (furloughs and lower working days) leads us to forecast moderate revenue growth of 0.8-1.5%. Infosys is expected to grow 1.5% QoQ with flat EBITDA margin at 28.3% as investments offset the positive USD/INR movement. HCLT is expected to post 1.5% QoQ revenue growth driven by IMS and BPO segments, while EBITDA margin is likely to dip by 20bps to 24.9% as wage hikes offset impact of USD/INR depreciation. TCS is likely to post revenue growth of 1.0% and 30bps margin improvement. We expect Wipro to post revenue growth of 0.8% with EBITDA margin of 21.3%, 30bps expansion QoQ. Tech Mahindra (TECHM) is likely to post 2.0% QoQ revenue growth (1.0% organic and balance from integration of Mahindra Engineering Services).

Infosys: Downward guidance revision due to cross currency impact

We forecast 1.5% sequential growth in revenues for Infosys. Owing to the cross currency impact of ~200-220bps, we expect Infosys to prune its annual guidance to 7-8% from 7-9% earlier. Investors will keenly track any detailed articulation of its strategy and impact of the same on financials in near to mid-term.

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https://www.edelweiss.in/research/IT--Seasonality,-Cross-Currency-The-Spoilsports--Result-Preview-Q3FY15/27951.html