IT sectors Q3FY13 earning estimates: P Lilladher

Prabhudas Lilladher has come out with its earnings estimates on Information Technology sector for December quarter FY13. The research firm expects, Infosys – FY13 USD organic revenue guidance likely to be revised downward by ~1.5 percentage point.

Prabhudas Lilladher Q3FY13 earning estimates for IT sector:

We continue to observe a stable demand environment for Indian IT Services companies. We are not seeing any further worsening in the demand environment. However, the current quarter performance is likely to be dragged down by furloughs, lower working days and push-out of decision making to CY13. The sales cycle continue to remain long. The results from tech majors like Oracle and Red Hat has been encouraging, nevertheless Accenture’s quarterly performance was a lacklustre. The divergent performance from the global tech major would be unison with the commentary from the Indian IT. The commentary will continue to be positive for the US and APAC, but no improvement in Europe. The pricing likely to be subdued, but negative commentary on pricing is likely to take a pause. The currency has been stable.

Infosys – FY13 USD organic revenue guidance likely to be revised downward by ~1.5 percentage point:

Infosys’ management has cited furloughs, lower number of working days and ramp-down by few clients could result in a guidance miss. We expect them to revise their organic revenue guidance to 3.5% YoY in USD terms. However, including Lodestone, the guidance is likely to be in the range of 4.5-5% YoY. We expect EPS to be revised downwards by ~1% to Rs158-159 from earlier Rs160. The management commentary is likely to stay cautious. We expect continued warning signals from the management. However, the commentary on pricing is likely to be stable.

Currency – Cross currency positive impact by 20‐40bps, other income to soothe bottom‐line:

Euro/GBP strengthened against USD by 1.8/0.8% and is likely to have a positive impact by ~20-40bps in USD terms revenue. Rupee was largely flat in the quarter against USD, EUR and GBP; hence, will not have any impact on the operating margin. However, the quarter end rate for JAS-12 was Rs52.6/$ against OND-12 quarter end rate of Rs54.8/$ will have positive tailwind at the bottom-line due to revaluation of financial assets.

What to look for? 1) Commentary on IT budgets 2) Pricing pressure v/s pricing discipline 3) Key verticals/Geography growth/de-growth expectation 4) Discretionary/Non-Discretionary spending 5) Any delay in project ramp-ups 6) Demand environment US/Europe/Continental Europe.

Tier‐2 IT companies – Performance likely to be in narrow range: We expect Tier-1 companies to deliver their 1-2.5% volume growth, with softness in realization, whereas, we expect mid and small Tier Indian IT companies to report 1-3% growth.

Infosys, Wipro, NIIT Tech and MindTree – our top pick in the sector: We expect Infosys to give in-line result, but low expectation leaves little room for negative surprise, whereas Wipro is likely to show another improvement on QoQ performance. NIIT Tech and MindTree are our preferred pick in Tier-2 as we expect momentum to get stronger in FY13 with stickiness in margins.

 

Summary Financials ‐ Quarterly (Rs m)

• Home
• Markets
• Loans
• SPIN2WIN
• News
• Portfolio