Motilal Oswal has come with its earning estimates on IT sector for June the quarter. Acording to the research firm, currency benefits to reflect in margins at Wipro and HCL Tech.
Motilal Oswal report on IT sector: Turbulent environment limits expectations of positive surprises Having entered the quarter with fresh headwinds, specifically in the BFSI segment, the industry's 1QFY13 guidance was far from strong. Full-year guidance by some players implied back-ended growth expectations. However, with continued elongation in decision cycles and no signs of macro recovery on the horizon, there is little to suggest that companies could surprise positively. We expect TCS to outperform on volume growth (estimate of 4% QoQ) on strong deal wins even in verticals like Telecom and BFSI, along with HCL Tech (+4% QoQ). Infosys (+0.7% QoQ) and Wipro (+1% QoQ) would be laggards, given the residual impact of ramp-downs witnessed in BFSI towards the end of 4QFY12 at Infosys and weakness in India business at Wipro. However, cross-currency headwinds will hit revenue growth, with average QoQ depreciation of 2.1% in EUR and 4.3% depreciation in AUD v/s USD. The impact on companies could be higher given that the weakness was greater at the end of the quarter, when a higher proportion of revenues get booked. We estimate 0-3% QoQ growth in USD revenue, led by TCS. Currency benefits to reflect in margins at Wipro and HCL Tech Despite a 7.5% QoQ depreciation of the INR v/s the US dollar, we expect muted margin performance at Infosys and TCS, while HCL Tech and Wipro's margins could reflect the benefits from currency. While visa costs, lower utilization and onsite hiring will offset the benefits from currency at Infosys, margins at TCS will additionally reflect the impact of wage hikes. We expect -30bp to +150bp QoQ change in margins, with outperformance led by HCL Tech (+150bp) and Wipro (+120bp). Expect cut in Infosys' USD revenue growth guidance, and spike in EPS guidance We expect Infosys to lower its USD revenue growth guidance from 8-10% to 6-8% on the back of cross-currency impact and some moderation in volumes, given that the environment does not lend enough visibility to support the high ask rates (4.3-4.85%) over 2Q-4QFY13 implied in current guidance. We expect Infosys to guide 2Q USD. (Rs million)| Company | Sales | Net Profit | ||||
| Jun.12 | % YoY | % QoQ | Jun.12 | % YoY | % QoQ | |
| HCL Tech | 57,888 | 34.6 | 11 | 6,840 | 39.2 | 17.6 |
| Infosys | 95,621 | 27.7 | 8 | 24,025 | 39.5 | 3.7 |
| MphasiS | 13,926 | 7.7 | 4.8 | 2,031 | 4.3 | 7.2 |
| TCS | 147,315 | 36.4 | 11.1 | 32,076 | 34.8 | 9.4 |
| Tech Mahindra | 15,511 | 20 | 9.3 | 2,860 | 3.3 | -5.4 |
| Wipro | 105,827 | 23.6 | 7.2 | 16,431 | 23.1 | 11 |
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