IT firms may report moderate growth in Jan-Mar
Software service providers are expected to provide a 1-4 percent sequential revenue growth in Jan-March, which is typicaly a slow quarter given that key decisions related to IT budgets and discretionary spends for the rest of the year are taken by clients during this time.
April 10, 2013 / 21:05 IST
Moneycontrol Bureau
Software service providers are expected to provide a 1-4 percent sequential revenue growth in Jan-March, which is typically a slow quarter given that key decisions related to IT budgets and discretionary spends for the rest of the year are taken by clients during this time.There has been some pickup in discretionary spends in the US in recent months, and several top IT companies have said growth in 2013 will be better than 2012. Therefore, the street will keenly look out for commentary on the year ahead. In particular, annual guidance from Infosys, which reports its fourth quarter results on Friday, could very well set the trend for the sector."We expect Q4 to be a decent quarter for the top 4 IT players - Tata Consultancy Services, Infosys, Wipro and HCL Tech, and have built in 2.0-3.5 percent quarter-on-quarter revenue growth. Commentary on demand outlook and client budgets for FY14 will be the key monitorable," said Sandip Agarwal and Omkar Hadkar of Edelweiss Securities.Axis Capital is expecting the top 4 tech firms to report a 2-3 percent quarterly growth in US dollar revenue. "Positive data from US and a higher deal pipeline year-on-year should lead to positive management commentary for FY14. We expect the demand outlook and
growth rates to show continuous improvement in coming quarters," said Priya Rohira and Vishal Desai of Axis Capital.Many analysts expect TCS and HCL Tech to continue to report strong volume driven revenue growth, ahead of peers.Unfavourable cross-currency movements (Rupee was relatively stable against the US Dollar, but appreciated versus the British Pound and depreciated against the Euro) and company specific factors (for instance, Infosys hiked onsite wages) could hurt margins of some companies including TCS, Infosys and HCL Tech by 50-60 bps in the quarter.Wipro, on the other hand, could see a marginal pickup in margins due to improvement in utilitisations.Infosys, which had been a laggard for several quarters, surprised positively in Oct-Dec. So a key question now is will it deliver in Q4?Morgan Stanley analysts Vipin Khare and Gaurav Rateria expect the second largest software services exporter to report revenue of USD 1,990 million (up 4.1 percent sequentially), including contribution from Lodestone, which is in-line with its guidance and marginally ahead of street expectations.Leader TCS, meanwhile, is expected to match third quarter's performance and commentary for the year ahead could remain strong and consistent with earlier quarters, they say.KEY THINGS TO WATCH-- Outlook for FY2014
-- Commentary on client budgets for calendar 2013
-- Pricing trends
-- Hiring plans and wage hikes in FY2014STOCK TALKSince the third quarter earnings were announced, IT stocks have outperformed the broader market. The CNX-IT index has gained near 16 percent since Dec-end, compared with a 6 percent decline in the wider Nifty index.IT stocks have traded positively on the back of pick up in discretionary spending, FY2014 deal pipeline looking better than FY2013, upbeat revenue by tier-I IT companies in a lull quarter and revenue growth seen from banking, financial services and insurance vertical, which is the highest revenue generator for IT companies, suggesting that weakness in BFSI is abating, points out Ankita Somani of Angel Broking.She has a "buy" rating on Tech Mahindra, Hexaware, KPIT Cummins and Infotech Enterprises and advises investors "accumulate" Infosys, Wipro and HCL Tech.Axis Capital, on the other hand, says Infosys and HCL Tech remain its top picks among large caps. It also has a "buy" on TCS, Tech Mahindra and Persistent.Nachiket Kelkar
nachiket.kelkar@network18online.com 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!
