Motilal Oswal has come out with its earnings estimates on technology for March FY12. The research firm expects muted growth as sluggish decision cycles compound seasonality
Motilal Oswal estimates on technology Q4 earnings: Expect muted growth as sluggish decision cycles compound seasonality: 4Q is seasonally a slow quarter for the IT sector industry given a chunk of clients’ bandwidth is lost in finalization of budgets. We expect revenue weakness in 4QFY12 to be more profound as the seasonality factor gets compounded by continued delays in decisionmaking. We expect USD revenue growth of 0.1-3.3% QoQ, led by Cognizant and HCL Tech, growing at the top end of the range. While Infosys is likely to deliver the guided number, we expect Cognizant to slightly surpass the guidance (3.2% QoQ growth v/s 2.2% guided). Wipro is expected to deliver at the mid-point of the guided band (2% v/s guidance of 1-3%). Normal hiring amid weak growth to clip utilization, impact margins: We expect companies to continue hiring as planned for the quarter despite weak growth expectations. This is expected to drive utilization levels down and hence impact margins. Margin decline would be further exacerbated by the ~2% sequential appreciation of the INR. We estimate 70-200bp QQ decline in EBITDA margins, with Wipro registering the least decline (where margins are near bottom) and TCS the maximum decline. Expect guidance range to be wider to accommodate uncertainty: As visibility remains marred in the current volatile environment, we expect companies to accommodate the resulting difficulty in estimating the revenue growth by guiding in a wider band. Expect Infosys to guide at 12-15% growth in USD revenues. We do not expect Cognizant to change its revenue growth guidance meaningfully as of now as growth builds in back-ended recovery expectations. We expect Wipro to guide 1.5-3.5% QoQ revenue growth in 1QFY13. Watch out for hiring guidance at Infosys, TCS along with Infosys’ overall guidance: Decelerated growth in FY13 would make it crucial to know the approach adopted by various players for hiring through the year and how they would manage the balance between preparing for any future or sudden demand spurt and margins over the near term in a slow growth environment. TCS has already announced 43,600 campus offers for FY13, while Infosys’ number stands at 23,500. (Rs in million)| Company | Sales | Net Profit | ||||
| Mar. 12 | %YoY | %QoQ | Mar. 12 | %YoY | %QoQ | |
| HCL Technologies | 52,959 | 28 | 1 | 5,062 | 13.6 | -8.4 |
| Infosys | 90,710 | 25.1 | -2.4 | 22,777 | 25.3 | -4 |
| MphasiS | 13,802 | 9.8 | 1 | 1,804 | -26 | -2.4 |
| TCS | 131,175 | 29.1 | -0.7 | 28,168 | 17.3 | -2.4 |
| Tech Mahindra | 14,549 | 15.3 | 0.7 | 996 | 111.9 | -3.1 |
| Wipro | 99,238 | 19.5 | -0.7 | 14,007 | 1.8 | -3.8 |
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