IT Earnings Preview - Q3FY09
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Showing posts with label IT Earnings. Show all posts
Showing posts with label IT Earnings. Show all posts
Friday, January 16, 2009
Thursday, October 02, 2008
Monday, July 07, 2008
Thursday, April 03, 2008
Wednesday, January 09, 2008
Thursday, January 03, 2008
Wednesday, September 12, 2007
IT Earnings, BHEL, Top Equity funds
Q2FY2008 IT earnings preview
After tough Q1, the frontline tech stocks are estimated to report a marked improvement in their performance during the current quarter. Traditionally, Q2 is one of the best quarters for Indian IT companies. Moreover, the rupee has also stabilised in the range of Rs40.5-41/USD and the average realisation in Q2 could be around Rs40.7/USD, which is almost at the same level as reported by the tech companies in the previous quarters. Consequently, the frontline tech companies are estimated to show a growth of around 9% in their cumulative revenues on a sequential basis.
STOCK UPDATE
Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,954
Current market price: Rs1,910
Annual report review
Key points
- Bharat Heavy Electricals Ltd (BHEL) had a splendid FY2007, registering a 29% growth in its revenues to Rs18,739 crore and a 44% increase in its net earnings to Rs2,414.7 crore. The operating profit margin (OPM) expanded marginally (by 60 basis points) to 19.1%.
- The power business registered a healthy growth of 28% in its revenues while the industrial business recorded a rise of 32% in its revenues during the year.
- It was a remarkable year for BHEL in terms of order inflow, which grew at 88.2% year on year (yoy) to Rs35,643 crore. Consequently, the order backlog at the end of the year stood at Rs55,000 crore.
- BHEL's cash pile stood at a huge Rs5,808 crore at the end of FY2007, thanks to reduced working capital requirement and lower capital expenditure during the year.
- The company has crafted a "Strategic plan 2012" targeting a turnover of $10 billion by 2012 vs $4 billion at present.
- In our view, the government's focus on increasing power generation in order to meet its mission of providing "power for all by 2012" would be one of the key catalysts for BHEL's order inflows, providing clear visibility to the company's earnings.
- We believe in future, the execution capability is going to be a key differentiating factor in this business and BHEL, which is a large player, will be better placed to secure the best orders in the industry. Hence, we remain bullish on the stock and reiterate our Buy recommendation with a price target of Rs1,954. At the current market price Rs1,910 the stock is trading at 30.4x its FY2008E earnings and 24.4x its FY2009E earnings.
Alphageo India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs517
Current market price: Rs416
Annual report review
Key points
- In FY2007, Alphageo India’s (Alphageo) revenues increased by around 128% year on year (yoy) to Rs54.3 crore. The operating profit rose by 128% yoy to Rs25.5 crore as compared with Rs11.2 crore in FY2006. However, the operating profit margin (OPM) remained almost flat at 46.9% in FY2007. The net profit grew at 78.3% yoy to Rs7.5 crore.
- The company witnessed a significant improvement in its project mix in FY2007, where the 3D projects made up around 77% of the total revenues as compared with around 44% in FY2006.
- The company's order book as on April 30, 2007 stood at Rs117.1 crore, which is around 70% higher than that of Rs68.8 crore on April 30, 2006. Around 85% of the company's current order book comprises of 3D projects.
- During the year, the company received a Rs58.4 crore contract from ONGC in the operational blocks of the Cauvery basin, Tamil Nadu. The contract will reduce company's excessive dependence on non-monsoon assignments.
- The Company added one more 3D crew in FY2007. The crew strength of the company now stands at five of which three are 3D crew and two are 2D crew.
- Alphageo is the largest private sector player with five crew (three 3D crew and two 2D crew) in operation for 2D and 3D seismic services. The company is well versed with almost all the terrains in the country, which makes the company one of the most experienced (private sector) players in the country to take the advantage of the ongoing boom in oil and gas exploration in the country. At the current market price of Rs416, the stock discounts its FY2009E earnings by 8.0x and is available at enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.0x. We maintain our Buy recommendation on the stock with a price target of Rs517.
SECTOR UPDATE
Steel
Sustained upturn in steel prices
The average international hot rolled coil prices has increased by approximately 6% in the last one month to $570 per tonne. Following the global buoyancy in the international market and the increase in feedstock prices, international companies such as POSCO and Hyundai steel have raised the prices for the second time in the last two months. We believe cost-push factors will keep the steel price firm for the medium term and increasing consolidation will ensure reduced volatility over the longer term.
MUTUAL GAINS
Sharekhan's top equity fund picks
We have identified the best equity-oriented schemes available in the market today based on the following 3 parameter : the past performance as indicated by the one and two year returns, the Sharpe ratio and Fama (net selectivity).
The past performance is measured by the one and two year returns generated by the scheme. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken. The Sharpe ratio is also indicative of the consistency of the returns as it takes into account the volatility in the returns as measured by the standard deviation.
FAMA measures the returns generated through selectivity, ie the returns generated because of the fund manager's ability to pick the right stocks. A higher value of net selectivity is always preferred as it reflects the stock picking ability of the fund manager.
Sunday, April 22, 2007
Software majors in Q4: Performance beats perceptions
Uncertainty and jitters. That probably best sums up the homestretch to the earnings announcements of software service majors this year. The prospect of a US slowdown, sharp rupee appreciation and possible turbulence in the financial services sector heightened fears of earnings growth skidding in 2007-08.
But, going by the management guidance and earnings conference calls of the top five software companies, most of the fears appear to have been assuaged, at least for the time being.
By toning down market expectations that were set much higher — at 25-30 per cent plus on revenues/earnings in the run-up to the results — Infosys Technologies managed to minimise the negative fallout to a large extent. And with Satyam Computers coming out with fairly strong guidance (apart from a good fourth quarter), most of the apprehensions have been set to rest.
While Tata Consultancy Services, Wipro (except for offering revenue guidance for the latest quarter) and HCL Technologies do not provide financial guidance, the senior management's comments on key trends in the marketplace are encouraging. Scanning the earnings radar throws up five key variables that are still working in favour of the software majors:
US SLOWDOWN
Almost every single frontline company has downplayed the impact of the probable US slowdown on software revenues. Except for the sub-prime mortgage woes that have hit a small segment of the financial services space, the overall business momentum appears quite robust.
In late March, Accenture, the multinational consulting-cum-services major, dwelt on its robust outsourcing pipeline, led by its management consulting practice. The company, which has 13,000 management consultants, is expected to nearly double its size over the next three years. Some part of this growth is likely come from low-cost, highly skilled locations such as India.
Similarly, SAP, the business management software company, has turned in weaker-than-expected earnings, though its software and software-related revenues have been fairly strong.
Similar views were echoed by the frontline domestic players. Take, for instance, the response of the top management of HCL Technologies in the latest conference call. Asked specifically about the slowdown, its President, Mr Vineet Nayar, said: "Am I concerned about the slowdown in America? The answer is no. Because we have polled our customers, especially the high-tech customers, and four of the deals we announced are in the high-tech area. So, as we speak, I do not see a slowdown trend."
Most other majors also responded in similar vein. A couple, however, witnessed sluggish revenue growth in the latest quarter from the financial services segment, one of the largest spend areas for the IT industry. Given the large-scale consolidation expected in the space, concerns had surfaced on whether the segment may witness an unexpected slowdown.
Dismissing such concerns, TCS' N. Chandrasekaran, Executive Vice-President and Head, Global Sales, said: "...the BFSI segment is not experiencing any slowdown at all.
On an annual basis if we really look at it, we have gone from 1.2 billion to 1.8 billion and all our clients are growing and it will continue to grow."
LARGE DEAL MOMENTUM
Pursuing large deals ($50-250 million) is fast becoming an integral part of the demand equation and overall corporate strategy of the top five domestic software companies. And by their very nature, these deals span multiple service offerings that range from application development/maintenance to infrastructure management, and engineering services to BPOs. At least four of the five frontline firms have talked extensively about the impact of large deals on their earnings call. For instance, TCS stated that it ended 2006-07 closing twelve $50-million plus deals across major markets and it is pursuing at least 10 deals which are more than $50 million plus.
Wipro also indicated that it has won 10 $50-million accounts and its pipeline remains strong in this area. Satyam stated that it bagged three large deals during the year, with its latest five-year $200-million Applied Materials contract being one of the largest deals it signed.
HCL Technologies, which announced six large deals over the past year or so, indicated that the EBIT (earnings before interest and tax) margins are higher than the company average for these big deals. The five majors have clocked revenues of $12-13 billion and if they have to maintain revenue growth of 25 per cent plus over the next year, they will have to clock incremental revenues of over $3 billion. Clearly, these large deals will play a crucial role in keeping the growth engine humming.
OTHER GROWTH LEVERS
For frontline players, the client pipeline across different revenue buckets — ranging from $1 million through $5 million and $10 million to $50 million — is still robust. Since mining the existing clients and repeat businesses have been key indicators of predictable growth, this metric has been tracked closely by analysts and observers alike. Take, for instance, Infosys. It has increased its million-dollar clients from 256 to 275. And at the upper end, the number of $50-million clients has increased to 12 from 11; $100-million clients from 2 to 3; and it has one client with revenues of $200 million.
The contribution of new service offerings, that was an insignificant proportion of revenues two years ago, today accounts for a fairly sizeable chunk. New service offerings such as engineering services, infrastructure management, testing and BPO account for over 20 per cent to a third of revenues for frontline companies. And this basket is only set to expand in the coming quarters.
Finally, the focus on the European geography has begun to pay handsome dividends for the top companies over the past year. This has helped broadbase the overall risks.
KEY POINTS TO WATCH
While IT companies have managed to tame expectations for 2007-08, a few key variables will influence their performance. These are:
Wage inflation and attrition: While frontline companies are budgeting yet another year of 12-15 per cent offshore salary increase, they hope to offset it through better utilisation and productivity increases. As supply challenges increase at the bottom of the employment pyramid in terms of recruitment of freshers, employee utilisation will be a metric that will be watched carefully in the coming quarters.
Billing rates: Though companies continue to maintain an upward bias to billing rates, it will be interesting to watch if this trend pans out as expected. This can offer some positive upside in some cases.
Client pipeline: While the top-ten clients have been firing on all cylinders for the frontline majors over the past year, the growth of non-top ten clients also needs to be monitored closely. In an unanticipated slowdown, they will hold greater scope for increased volumes and protect margin growth.
Thursday, April 05, 2007
Q4FY2007 IT earnings preview: Sharekhan Special dated April 04, 2007
Q4FY2007 IT earnings preview
The street expectations have toned down considerably in terms of both Q4 performance and the annual guidance for FY2008, and the recent underperformance of the tech stocks indicates that the same has already been factored in the valuations. This essentially means that the negatives have been priced in, leaving limited scope for downside. But positive surprises, especially in terms of higher than expected annual guidance by Infosys, are not ruled out. However, the continued strengthening of the rupee and seasonal weakness in Q1 (due to wage hikes and additional visa related cost) would continue to influence sentiments on tech counters in the short run. We believe that any further weakness would be an opportunity to accumulate the front-line tech stocks and prefer Infosys and TCS.
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Wednesday, April 04, 2007
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