Technology sector results preview for Q3FY12: Motilal Oswal

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Technology sector results preview for Q3FY12: Motilal Oswal

Motilal Oswal has come with its December quarterly earning estimates for technology sector. The research firm expects Infosys to guide1.5-2.5% USD revenue growth for 4QFY12 and 16.6-16.9% for FY12.

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Motilal Oswal has come with its December quarterly earning estimates for technology sector. The research firm expects Infosys to guide1.5-2.5% USD revenue growth for 4QFY12 and 16.6-16.9% for FY12. However, given closing INR at ~52/USD, EPS guidance is likely to be maintained.

Expect weak 3QFY12 USD revenue growth marred by cross currency headwinds:

3QFY12 is seasonally weak quarter for the industry, driven by manufacturing and hi-tech industries' furloughs and fewer working days. We expect companies to report 2.1-3.1% USD revenue growth, post 90-170bp cross currency headwinds. Infosys is least impacted with 90bp impact while Wipro, HCL and TCS are likely to be impacted 130-170bp, led by relatively higher Europe and India exposure.

3QFY12 - another quarter of convergence in USD revenue growth for Infosys v/s TCS:

Infosys is likely to report USD revenue growth of 3.1% v/s 2.6% for TCS. PAT growth is also likely to be higher at 17.8% QoQ v/s 14.2% for TCS. Earlier, Infosys had guided 3.2-5.4% USD revenue growth. The guidance assumes 100bp impact from cross currency, implying 4.2% volume growth at lower end. Later, the company indicated growth is likely to be closer to bottom-end guidance due to delays in ramp-ups. Infosys could marginally miss even the bottom end of implied volume growth guidance (we model in 4% volume growth). Still, its USD revenue growth is likely to be higher than TCS', post 90bp cross currency impact.

Wipro unlikely to spring 3Q positive surprise; prefer HCL Tech on strong deal wins:

For Wipro, USD revenue growth will continue to be at lower end v/s peers. We expect Wipro to report 2.1% USD revenue growth in 3QFY12. We continue to prefer HCL Tech on strong deal wins. We expect HCL Tech to win deals with TCV >USD2b in 2HCY11. However, 170bp negative impact from cross currency and seasonal deceleration would keep growth muted for this quarter.

Expect cautious commentary, marginal cut in Infosys USD revenue guidance:

We expect companies to be incrementally cautious in their commentary, toning down growth expectations. Infosys' comments of a deterioration in the environment, and ability to achieve only the bottom end of the guidance with a further cross currency impact of 50bp in 4Q implies the possibility of a marginal cut in full year USD revenue guidance. We expect Infosys to guide1.5-2.5% USD revenue growth for 4QFY12 and 16.6-16.9% for FY12. However, given closing INR at ~52/USD, EPS guidance is likely to be maintained.

Expected quarterly performance summary

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