Result Preview: Information Technology
We expect companies under our coverage to report a sequential revenue growth of about 2.9%, driven by volumes. Volumes for the Top 4 companies are expected to rise by 2% - 3%. While there is a seasonal impact, slower growth in discretionary spends and continued delays in spending decisions have likely continued to impede revenue growth, we believe. Hurricane Sandy also had a marginal negative impact, we understand. The cross currency volatility impact is expected to be marginally positive but the near 2% QoQ appreciation of the rupee on an average will have a negative impact on revenues Average realizations are expected to have remained stable QoQ, barring few cases of declines.
EBIDTA margins are expected to be marginally lower QoQ for our coverage universe. Salary hikes by select companies, rupee appreciation and relatively lower number of billing days will likely have an impact. Quarterly variations in some companies will also likely impact the overall picture. We expect EBIDTA to rise by about 1% QoQ, for companies under our coverage.
Companies follow different hedging strategies and different accounting policies. This may lead to corresponding impact of currency volatility on other income. Consequently, PAT is expected to DE-grow by about 1.1% for companies under our coverage (About 2.4% de-growth for the Top 4).
With higher-than-expected impact of delays in decision-making and client shut-downs in 3Q, we expect Infosys to reduce the organic annual revenue guidance marginally.
Among other things, we will also watch out for :
a) Comments by company managements on budget spending patterns and order-booking trends,
b) CY2013 budgets,
c) Pricing declines, if any and comments on the same,
d) Strength in any of the verticals / services
While the economies of USA and EU may take long to stabilize and improve, the stimulus measures taken by the developed economies of USA and EU have eased concerns of catastrophic defaults / bankruptcies. The bid by the US Government to avert the fiscal cliff may instill more confidence in the medium term prospects of the US economy and may lead to better decision-making by client companies. This may prevent demand from falling in the foreseeable future. While stocks may trend side-ways in near term, we maintain our constructive view on the medium-to-long term prospects of the sector on expectations of improving demand over this period.
By Mr. Dipen Shah, IT Analyst, Kotak Securities
