Analysts feel that HCL Technologies' margins might benefit from currency to register 4 p.c. QoQ growth, while TCS is expected to outperform its peers in volume growth
BANGALORE, INDIA: The April-June quarter of 2012 has come to a close and its time for Indian IT majors to make their results announcement.
True it's a new quarter, but the fact remains that times have not improved much from what it was the last couple of quarters. There is still not much visibility about spending by US and European clients and the pall of gloom on the global economy is yet to lift off.
"Hopes of a recovery in the second half are just that, hopes," Apurva Shah, head of research at BNP Paribas Mutual Fund, which manages investments of about $750 million, including in the top Indian IT companies, has said.
According to the preview by broking firm Motilal Oswal, "Despite a 7.5 per cent QoQ depreciation of the INR vs USD, we expect muted margin performance at Infosys and TCS, while HCL Tech and Wipro's margins could reflect the benefits from currency."
While visa costs, lower utilization and onsite hiring will offset the benefits from currency at Infosys, margins at TCS will additionally reflect the impact of wage hikes. "We expect -30bp to +150bp QoQ change in margins, with outperformance led by HCL Tech (+150bp) and Wipro (+120bp)," say its analysts.
Tata Consultancy Services
India's top software exporter Tata Consultancy Services (TCS) is expected to maintain its lead over Infosys in April-June quarter. Analysts expect revenue of TCS to increase, though the quarter is likely to be muted for both TCS, and they expect TCS to outperform its peers in terms of volume growth.
Motilal Oswal estimates TCS volumes to grow 4 per cent. On the revenue front, the bellwether is likely to do better than Infosys with an expected revenue growth of 3 per cent to $2,744 million compared with the previous quarter. In rupee terms, TCS is expected to post 11 per cent revenue growth to Rs. 147.3 billion. It is likely to steal the lead because of the deals it has won in BFSI and telecom sectors.
But, Debashish Mazumdar, senior research analyst (IT & Media) at Way2Wealth, points out that TCS is experiencing softness in the BFS vertical demand, as the sales cycle is getting longer and discretionary spend is eluding. "However, the growth is likely to come from the new deal wins in insurance and telecom."
According to him, TCS's topline in Q1FY13 is expected to register 1.76 per cent of sequential growth to reach $2694 million. "Volume growth is expected to continue (3.26 per cent QoQ against 3.20 per cent in previous quarter), mainly backed by ramp-up of earlier-won deals. But, reported revenue growth is expected to be impacted by 1.5 per cent due to adverse cross-currency movement."
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Infosys Limited
Motilal Oswal estimates Infosys's revenue growth to be flat on quarter. The broking firm has estimated Infosys's volumes to be as low as 0.7 per cent. The company is expected to post a flat quarter in terms of revenue to $1,771 million.
Many bet that Infosys, which normally provides a full-year forecast, would pare its revenue growth estimate for the current fiscal year to as low as 5 per cent.
Infosys is expected to start the financial year with a flattish sequential topline performance, say Way2Wealth analysts. "The company missed its revenue guidance in the previous quarter, due to delay in decision-making, slow ramp-up in certain projects combined with ramp-downs in select client businesses (especially BFS client in U.S.). The overhang is expected to continue in this quarter as well, and hence, USD term revenue is expected to register 0.26 per cent growth sequentially to reach $1775 million."
Motilal Oswal predicts that despite of the rupee advantage and no wage hikes, its EBITDA will decline by 30 basis points. In Rupee terms, revenue estimates stand at Rs. 9,560 core, up 8 per cent QoQ, entirely due to the rupee depreciation.
"Expect cut in Infosys' USD revenue growth guidance, and spike in EPS guidance. We expect Infosys to lower its USD revenue growth guidance from 8-10 per cent to 6-8 per cent on the back of cross-currency impact and some moderation in volumes."
Wipro Technologies
Wipro, with 1 per cent QoQ, would be a laggard, given the residual impact of weakness in its India business, say Motilal Oswal analysts.
"Wipro's revenue from IT services is expected to register 0.50 per cent growth sequentially to $1544 million. Growth would be lower as delay in decision making, setback in project ramp up and huge uncertainty into the systems affected the volume growth. Cross currency also expected to impact growth by 200bps," says Mazumdar.
On a constant currency basis, Wipro's operating margin is expected to remain under pressure as low utilization and lower volume growth would impact performance. But, due to currency benefit margin is expected to remain flat sequentially. "We believe, operating margin would reach 16.85 per cent in Q1FY13 against 17.26 per cent in the previous quarter," predicts Way2Wealth.
HCL Technologies
It's Q4, unlike other Indian IT majors, for HCL Technologies. Like TCS, however, it is also expected to have a strong-among-peers 4 per cent QoQ growth.
Says Mazumdar, "HCL Technologies' topline in Q4FY12 is expected to register 1.81 per cent sequential growth to reach $1067 million. Software services segment is expected to grow by 1.71 per cent sequentially and Infrastructure services segment is expected to register a sequential growth of 3 per cent, mainly backed by ramp-up of past won deals."
The company is not expected to face any margin pressure in Q4FY12, as the wage hike is scheduled to happen in next quarter, he adds.
(With inputs from Reuters)
