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10 April 2017
Seasonal
weakness is likely to keep the growth of the Indian IT industry muted in the
fourth quarter (January-March) of 2016-17, said global investment banking firm
Jefferies LLC on Monday. The Total Investment
& Insurance Solutions
"Cross
currency will be favourable on dollar revenue and margins stable," said
the US-based securities firm in a statement from New York ahead of the Indian
IT majors declaring their financial results for the quarter (Q4) under review
and fiscal 2016-17 this month.
Though
the focus of results will be on the revenue outlook for the new fiscal 2017-18,
capital allocation (buyback of shares), progress in digital and pricing will
also merit attention in view of constructive guidance and commentary from their
US listed peers.
"As
growth outlook for fiscal 2017-18 will be the focal point of results, we expect
Infosys to guide for a 7-9 per cent YoY growth in constant currency (cc) terms,"
said Jefferies in the statement. The Total
Investment & Insurance Solutions
The
city-based global software major will declare its results for Q4 and fiscal
2016-17 on April 13 in this tech hub. The Total
Investment & Insurance Solutions
For
the fourth quarter (Q4), consolidated revenue growth of Infosys is likely to be
1.2 per cent sequentially, 0.9 per cent in cc and 5.5 per cent YoY.
"Margins
will decline 40bps (basis points) sequentially due to rupee depreciation in the
quarter (Q4) and higher variable pay-outs over the previous quarter," it
said.
Market
has been expecting Infosys to announce a significant buyback and capital
allocation strategy, which will be important from its stock price perspective.
In
case of bellwether Tata Consultancy Services (TCS), Jefferies estimates 1.5 per
cent quarterly or sequential growth in dollar terms, 1.1 per cent in constant
currency (cc) and 5.8 per cent YoY.
"The
focus of TCS results will be on stable performance, attention on its Chief Executive
Officer (CEO) commentary," pointed out the statement.
Senior
executive and former Chief Financial Officer (CFO) Rajesh Gopinathan took over
as the new CEO of TCS on February 21 following the appointment of its incumbent
N. Chandrasekaran as Chairman of Tata Sons Ltd of the Indian multinational Tata
Group.
Margins
of the outsourcing firm are expected to be flat sequentially, with operational
improvements and cross currency benefits offsetting the negative impact act of
rupee appreciation. The Total Investment
& Insurance Solutions
"TCS
could increase its payout ratio to 50 per cent given its healthy cash
generation profile. Commentary on growth outlook for FY2018, order book, growth
in digital, pricing trends and impact of potential visa reforms on the business
will be critical," asserted the analyst's statement.
Software
major Wipro will have a slow start to the new fiscal with a 1.8 per cent
sequential revenue growth, 1.4 per cent in cc and 3 per cent YoY, in line with
its guidance of 1.2 per cent quarter-on-quarter (QoQ) growth. The Total Investment & Insurance Solutions
"Majority
of the growth would have been contributed by the integration of its Appirio
acquisition. We expect Wipro to guide to a 1-2 per cent QoQ growth for the
first quarter (April-June) quarter of new fiscal (FY 2018)," pointed out
the statement.
Jefferies
expects Wipro's margins to contract 20 bps sequentially in Q4 owing to rupee
appreciation and the integration of Appirio.
"Investors
will focus on progress on initiatives taken by the new CEO and improvement in
large client profile," said the statement. The Total Investment & Insurance Solutions
Wipro
acquired the US-based the cloud-based consulting firm Appirio for $500 million
(Rs.3,350 crore) in October 2016 to consolidate its foothold in cloud
transformation services.
Jefferies
expects revenue growth of HCL Technologies to be 3.8 per cent QoQ and 14.2 per
cent YoY, with most of it coming from its acquisitions during the quarter (Q4)
of FY 2017.
"We
expect HCL Tech to guide to 10-12 per cent YoY growth, including acquisition/alliances)
for FY 2018," said the statement. The
Total Investment & Insurance Solutions
Margins
for Q4 will remain flat QoQ with negative impact of rupee depreciation being
offset by the incremental contribution from the IP (Intellectual Property) deal
with IBM.
Slowdown
due to rationalisation and deal termination is expected to the limit Tech
Mahindra's revenue growth in Q4 to 1.1 per cent, 0.4 per cent in cc and 10.2
per cent YoY in rupee terms.
"The
company's telecom business is likely to remain flat QoQ, with core growth and
Comviva seasonality being offset by the rationalisation of its ALCC
(Lightbridge Communications Corporation) business and the termination of base
contract," said the statement.
Mahindra
bought the US-based LCC for $240 million (Rs.1,486 crore) in March 2015 in an
all-cash deal to strengthen its presence in the growing telecom and enterprises
network market.
The
NCR-based company also bought 51 per cent majority stake in mobile- value added
services provider Comviva Technologies Ltd of Bharti Group for Rs.260 crore in
September 2012.
"Margins
of Tech Mahindra could decline 20bps QoQ and take some impairment in its LCC
business in Q4," added the statement.The
Total Investment & Insurance Solutions
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