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Jan 11, 2013, 01.47 PM IST | Source: Moneycontrol.com

IT sector Q3FY13 earning estimates: Motial Oswal

Motilal Oswal has come out with its earnings estimates on IT sector for December quarter FY13. The research firm expect EBIT margin contraction of 20-150bp across tier-I and 80-430bp across tier-II companies.

Motilal Oswal has come out with its earnings estimates on IT sector for December quarter FY13. The research firm expect EBIT margin contraction of 20-150bp across tier-I and 80-430bp across tier-II companies. INFY and HCL Tech should see greater declines on account of impacts from wage hikes during the quarter. Among tier-II, large client ramp-down at Hexware (HEXW) is expected to have a huge impact on the margins (we estimate 430bp QoQ decline), and we expect margin declines of 80-190bp across rest of the pack.

Seasonal deceleration in volume growth - Infosys, tier-II worst hit:

Furloughs in the holiday season usually impact volume growth in 3Q, which is likely to be more pronounced this time around as lower working days get compounded by some impact from hurricane Sandy. On an organic basis, we expect USD revenue growth of 1.1-3.5% across tier-I IT companies led by TCS , while Infosys is expected to lag. Among tier-II, we expect at least 3 companies (organic revenues at Tech Mahindra, KPIT and Hexware) to post sequential decline in USD revenues during the quarter. Revenues from acquisitions would drive higher consolidated growth at Infosys (INFY) and Tech Mahindra (TECHM).

Cross currency benefits:

On an average, Euro has appreciated 3.6% QoQ and GBP 1.6% QoQ. This is expected to rub off positively on revenue growth, impacting top tier IT firms positively to the extent of 40-60bp as per our estimates.

Margins to decline across the board; INFY, HCL to be the most hit; Hexaware in tier-II:

We expect EBIT margin contraction of 20-150bp across tier-I and 80-430bp across tier- II companies. INFY and HCL Tech should see greater declines on account of impacts from wage hikes during the quarter. Among tier-II, large client ramp-down at Hexware (HEXW) is expected to have a huge impact on the margins (we estimate 430bp QoQ decline), and we expect margin declines of 80-190bp across rest of the pack.

Watch out for Cognizant's revenue guidance, HCL's deal signings:

Two numbers that could lend some visibility on the growth outlook for FY14 are revenue growth guidance by Cognizant for CY13 (consensus is building 16.5% growth) and the quantum of deal signings by HCL (following the comments of a deal-heavy OND quarter). Also, comments by Infy and TCS on the outlook of BFSI spends will be crucial.

Prefer Infy, TECHM, HCL:

We prefer Infy and HCL among the top tier and expect the increased flexibility by the former towards revenue growth to bear fruits over time. HCL should continue to benefit from its deal signing prowess in the current environment for restructuring deals. Also, demerger of non-core business is a positive for Wipro. Among tier-II, TECHM is our top pick, where peer-matching growth (along with Mahindra Satyam) despite exposure to challenged telecom vertical would help drive valuations, notwithstanding a seasonally weak 3QFY13.

Expected quarterly performance

(Rs Mn)

Company

Sales

Net Profit

Dec '12

% YoY 

% QoQ

Dec '12

% YoY 

% QoQ

HCL Technologies 62,256 18.7 2.2 8,358 51.2 -4.1
Hexaware Tech. 4,985 15.4 -1.8 634 -28.1 -24.5
Infosys 100,548 8.1 2 21,356 -10 -9.9
KPIT Cummins 5,557 46.7 -2 562 36.7 35.7
Mindtree 5,875 13 -1.5 868 43.3 20.3
MphasiS 13,169 -3.7 0.8 1,951 5.6 -6.8
TCS 159,845 21.1 2.3 34,305 18.8 -2.3
Tech Mahindra 17,477 21 7.1 3,414 23.5 15.3
Wipro 109,200 9.2 2.5 15,953 9.5 -0.9

 

 

 

 

 

 

 

 

 

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