Kotak ups IT cos FY14-15 EPS estimates on falling Rupee
Kotak expects IT companies will get a EPS boost due to the recent Rupee depreciation, but there will not be much margin benefits due to increasing competition, and lower pricing push by clients.
June 06, 2013 / 13:52 IST
Moneycontrol Bureau
Kotak Institutional Equities has raised its earnings per share (EPS) estimates on tier-I software services exporters by 3-5 percent for FY2014-15 following a depreciation in the Indian Rupee.The Rupee has fallen sharply in recent days and hit a near one year low of Rs 57 to one US Dollar on Thursday.Kotak Institutional says it has incorporated revised USD-Rupee assumptions of Rs 56 and Rs 55.5 for FY14 and FY15 respectively, up from Rs 54 and Rs 53.5 earlier.Also Read: Edelweiss bets on IT, pharma; sees Nifty swinging 600 ptsHowever, the analysts say one shouldn't expect any significant margin boost from the falling Rupee."Companies will struggle to retain margin benefits due to competitive pressures, smarter buying strategies by clients and the need to invest to expand addressable market," they said on Thursday.So for instance, TCS' FY14 EPS forecast has now been increased to Rs 82.9 from Rs 79.6, Wipro's EPS forecast has been upped to Rs 27.3 from Rs 26.2 and HCL Tech's forecast has been raised to Rs 57.8 from Rs 55.9. EBITDA margin forecast, however, has largely remained unchanged.Competition has increased at a time of slowdown in market share gain for Indian IT cos, that and commoditization of traditional services has led to pressure on pricing and profitability. Further, clients are also now able to push for lower pricing and staffing of more experienced resources on projects, the Kotak analysts add.The brokerage has raised target price of IT stocks like TCS, HCL Tech, Wipro, Tech Mahindra, MindTree,Hexaware and MphasiS by 3-5 percent. However, barring an "add" rating on Infosys, Tech Mahindra/Satyam and MindTree, Kotak feels investors should "sell" or "reduce" other IT stocks.The CNX-IT index was trading down 0.3 percent in morning trade. While Infosys and MindTree were down 1.3 percent and 0.6 percent respectively, TCS, Tech Mahindra, HCL Tech, MphasiS and Hexaware were up 0.6-2.3 percent. The wider Nifty index was down 0.6 percent.Don't Miss: FinMin snubs banks for reckless lending Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
