IT Services, Lean Quarter; Order Book Visibility Remains Key monitorable.... :: IndiaNivesh, link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Lean Quarter; Order Book Visibility Remains Key monitorable....
Cross-currency holidays/furloughs to result in muted growth for the
companies
Tier-1 IT companies could report $-revenue growth in the range of 2.2-1.0% Q/Q in
December quarter, partially offset by cross-currency headwinds. We expect cross
currency impact of 220-170 bps for companies under coverage. Despite
improvement in overall demand scenario across sectors, we expect companies under
our coverage to report muted performance both on top-line as well as operating
profit levels. The Oct-Dec quarter is generally a lean quarter for industry because of
furloughs/shutdowns and holidays which result in lower number of billable hours.
Despite weak INR vs USD, we do not expect improvement at net level due to
appreciation of INR against other global currencies. TechM is likely to deliver industry
leading $-revenue growth. Amongst, Tier-1 Infosys may deliver lowest growth but
could give positive client budget commentary. BFSI and Manufacturing verticals are
likely to demonstrate muted performance due to furloughs. Retail and new age IT
(Cloud & Mobility) could see strong show. The dollar has appreciated v/s Euro, GBP
and AUD, which will have a negative impact on reported USD growth (Cross Currency
Impact).
Positive Client Budget Commentary: On back of rebound in Tech Pulse, ISM
Manufacturing, CEO Confidence, and US Corporate profit Index, we expect positive
IT budget commentary from Tier-1 IT companies. The companies could see slight
uptake in client budget relative to CY14. Key drivers would be revival in USA economy
and signs of improvement & stabilization in Europe. In CY15, IT services sales are
expected to grow by 3.6% Y/Y to $679bn, according to Gartner. This could further
lead to higher revenue visibility going-ahead in FY16/FY17. Tier-I companies order
book could include large size deal wins from Europe. Though current quarter
performance could remain muted, long-term outlook appears robust for IT services
industry.
SQS BFSI mid-cap growth leader: In our mid-tier coverage, we expect SQS BFSI
India to lead the $-revenue growth followed by KPIT and Mastek. Given the crosscurrency
impact and delays from large clients, NIIT Tech is likely to see muted revenue
performance. On back of KPIT’s better than expected performance, we expect the
company to meet its FY15 $-revenue guidance. On back of strong show from
insurance vertical, Mastek could post $-revenue growth of 2.5% Q/Q, partially offset
by muted performance in Government vertical segment.
Key Monitorables: - (I) Infosys’s management commentary on future revenue
outlook and update on continuous attrition in top brass, (II) BFSI, Manufacturing
and Retail vertical outlook, (III) Commentary on discretionary spend uptake, (IV)
TCS – future demand outlook, (V) Wipro – Q4FY15 guidance, (VI) HCLT – Outlook of
software and IMS segment, (VII) TechM – demand outlook/synergies & cross-selling
opportunity (VIII) NIIT Tech – EBITDA margin commentary, and (IX) KPIT – free cash
flow generation/Cummins & other key segments outlook.
Prefer Mastek, SQS, Onmobile & KPIT: The strong deal wins; low running
expectation, valuation discount and unutilized margin levers leave room for positive
surprise for Mastek, SQS, Onmobile & KPIT in mid-cap space. Infosys potential to
outperform its peers has strengthened in light of global recovery and stable
management. After re-organization & de-merger of non-IT segment, Wipro is
returning to industry level growth and sustenance could lead to further re-rating.
TCS is a consistent performer; however, any disappointment could lead to de-rating.
Key risk: Sluggish growth in lead economic indicators in US and Europe.

LINK
http://www.indianivesh.in/Admin/Upload/635563011835641250_Nivesh_Q3FY15%20Results%20Preview_IT.pdf