Angel expects healthy quarter for IT, modest volume growth

Angel Broking earning estimates on IT sector for June quarter:

Cyclically a healthy quarter with modest volume growth traditionally, 1Q is a strong quarter for IT companies as client budgets on the kind of discretionary, operational and capital spending freeze by 4Q and budget flush start happening in 1Q. However, we expect 1QFY2013 to be better than 4QFY2012, but not as good as traditionally 1Q is, due to unstable macros and economic uncertainty across developed economies because of which clients are delaying the incremental budget flush from their end.

For 1QFY2013, we expect volume growth to be in the range of 0.9-4.0% qoq for tier-I IT companies, with TCS leading the pack. For tier-II companies, we expect growth to be modest at 1.0-4.2% qoq, as utilization is expected to inch up on a qoq basis. Hexaware is expected to be the leading tier-II IT company, whereas Mphasis is expected to be at the bottom.

USD revenue to grow, albeit at a slower pace

The cross-currency movement, which had proved to be a boon during 2QFY2011-1QFY2012, has turned into a bane since the last couple of quarters. In 1QFY2013 again, it turned negative for IT companies with the USD appreciating by 2.0% against Euro. This will have an impact of 0.4-0.7% qoq on USD revenue of tier-I IT companies. For 1QFY2013, on the back of decent volume growth, stable pricing and unfavorable cross-currency movement, we expect USD revenue of tier-I IT companies to grow moderately by 0.3-3.5% qoq.

For tier-II IT companies, USD revenue growth is expected to be 0-3.7% qoq, with Hexaware leading the pack.