Prabhudas Lilladher has come out with its report on IT sector. The research firm continues to retain their preference for Wipro and Infosys as the expectation and valuations leave room for positive surprise.
The performance of Q3FY13 (OND-12) was bunched-up in terms of volume growth (excluding Wipro
) for Tier-1 (Top-4) Indian IT vendors, with strong-beat-to expectation by Infosys
, touch ahead for HCL Tech
, whereas in-line performance by Wipro. The growth from Europe was a sigh of relief; however, commentary was more optimistic for the US. The demand environment has shown recovery, but we expect steady rather than sharp recovery. We continue to retain our preference for Wipro and Infosys as the expectation and valuations leave room for positive surprise. Positive surprise- Infosys, Beat- TCS and HCL Tech, In-Line - Wipro:
Volume growth (excluding Wipro) in Q3FY13 has been more bunched-up; however, different level of productivity gain has resulted in various degrees of outperformance and underperformance. Volume surprise was in the range of 2% to 1%, whereas operating margin performance has been divergent with positive surprise from all. The productivity gain offset weak volume momentum. Infosys delivered the strongest growth of 6.3% QoQ (Organic Volume: 1.5%; Pricing: 1.8%; @CC: 3.3%) followed by TCS of 3.3% QoQ (V: 1.25% P: 1.3% @CC: 2.64%), HCLT of 1% QoQ (V: 0.4%; P: 0.5% @CC: 1%), and Wipro of 2.4% QoQ (V: -1% P: 3.8% @CC: 2.8%). Q3FY13 was a trend reversal (3.6% QoQ in USD term, ΔRevenue: $286m) after hitting trough in Q2FY13. We see the deal pipeline improving, but the recovery needs to be sustained for better CY13. Infosys performance . Defying consensus:
Infosys performance has exceeded expectation on all counts including organic revenue growth and margin. The management commentary was incrementally positive. We now expect steady improvement in Infosys performance. Growth from Europe a positive surprise, Commentary more optimistic for NA:
Growth across Tier-1 and technology majors has been strong from Europe. According to the managements, the stronger growth was largely due to underpenetration that has led to acquisition of few first-time outsourcers/offshorers and smaller base. However, the management remained more positive about growth from North America. Despite caution and furloughs, BFSI and manufacturing strong:
The commentary of managements indicated more run-the-bank, few transform-thebank and regulatory related work. Moreover, the management indicates scope of pent-up demand unleashing in BFSI. We expect FY14 growth to get stronger.
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