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>INDIAN IT SERVIES (JP MORGAN)
1QFY10 preview: Expect quarter to be in line with guidance and consensus; Management outlook on demand recovery is key
• We expect an in line 1QFY10 quarter, meeting management guidances and consensus estimates. We expect volumes to be largely stable Q/Q, with a slight follow-on impact of price declines. As a result, US$-revenues should be flat to marginally down Q/Q, with Rupee/US$ appreciation leading to Rupee revenues being down 5-7% Q/Q. EBITDA margins should contract due to lower utilization and currency, leading to 5-15% Q/Q EBITDA declines. However, EPS performance could vary dramatically due to different hedging policies. On a company specific basis, we expect Infosys performance to be weaker than TCS/Wipro due to investments in sales and marketing and limited hedging.
• We believe that the key in 1QFY10 results is the outlook for 2QFY10 and qualitative management commentary on demand. We expect all companies to indicate an improving business environment, more deal closures and acceleration in ramp-ups. Further, we expect companies to indicate low-to-mid single digit revenue growth in 2QFY10, at the higher end of consensus expectations. With Infoys being the only large player providing FY10 guidance, we do not expect material change in Rupee guidance as Rupee/US$ appreciation would offset any benefit on business improvement.
• Investment view: We have been fundamentally positive on the sector given our view of improving business outlook for offshore players and low consensus expectations. We expect 1QFY10 results and management commentary to confirm this trend and lead to upgrades in consenus estimates. In term of stock prices, a sharp upmove in the last few weeks could mean a near-term breather – we would be buyers in such a correction on a 9-12 month view.
To see full report: IT SERVICES
• We expect an in line 1QFY10 quarter, meeting management guidances and consensus estimates. We expect volumes to be largely stable Q/Q, with a slight follow-on impact of price declines. As a result, US$-revenues should be flat to marginally down Q/Q, with Rupee/US$ appreciation leading to Rupee revenues being down 5-7% Q/Q. EBITDA margins should contract due to lower utilization and currency, leading to 5-15% Q/Q EBITDA declines. However, EPS performance could vary dramatically due to different hedging policies. On a company specific basis, we expect Infosys performance to be weaker than TCS/Wipro due to investments in sales and marketing and limited hedging.
• We believe that the key in 1QFY10 results is the outlook for 2QFY10 and qualitative management commentary on demand. We expect all companies to indicate an improving business environment, more deal closures and acceleration in ramp-ups. Further, we expect companies to indicate low-to-mid single digit revenue growth in 2QFY10, at the higher end of consensus expectations. With Infoys being the only large player providing FY10 guidance, we do not expect material change in Rupee guidance as Rupee/US$ appreciation would offset any benefit on business improvement.
• Investment view: We have been fundamentally positive on the sector given our view of improving business outlook for offshore players and low consensus expectations. We expect 1QFY10 results and management commentary to confirm this trend and lead to upgrades in consenus estimates. In term of stock prices, a sharp upmove in the last few weeks could mean a near-term breather – we would be buyers in such a correction on a 9-12 month view.
To see full report: IT SERVICES
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