March 2017 Results Preview | Sector: Technology
4QFY17 RESULTS PREVIEW
| Sector: Technology
Technology
Can growth recover next fiscal?
Amid some H-1B reprieve and BFSI hopes, INR appreciates
Keeping 4Q expectations in check amid limited signs of momentum pick-up
The usual seasonality of the fourth quarter, compounded with (a) sporadic citation
of concerns around budget and decision-making delays, and (b) problems in some
key accounts, keeps us from building any recovery in growth momentum in 4Q or in
the immediate future. Yet, there are a few potential positives to note:
Overall positive messaging in terms of deal wins, BFSI environment and client
conversations, especially by tier-I IT.
Likely postponement of any developments around H-1B visas, with fresh
applications being accepted for the next year, starting early April. That said,
recent overrule of programming jobs’ automatic qualification under “specialty
occupation” may not have a substantive impact, but does call for more scrutiny
going forward.
Traction in change-the-business side of the business, which has been the key
additive factor for revenue growth, though not enough on current base.
These may aid gradual improvement in growth through the course of FY18
rather than a sudden pick-up in growth.
Building 0-2% CC sequential organic growth; expect higher revenue growth to be
aided by acquisitions
We are modeling (on organic basis) 0-2% QoQ CC growth across our coverage
universe. Contribution from acquisitions should help HCLT inch this to 3.4% QoQ
CC. Among tier-I, last quarter, TCS cited expectation of sustained momentum in
4Q, driving our estimate of 2% QoQ CC; for INFO, we expect growth to be at the
midpoint of its guided band (1% QoQ CC). Recovery in Communications
witnessed in the past couple of quarters has taken a pause, driving our
assumption of marginal growth at TECHM. WPRO should be helped by full-
quarter revenue from Appirio acquisition.
Among tier-II, we expect steady growth for LTI, ZENT and CYL. For MTCL (1.5%
QoQ CC) and HEXW (0.5% QoQ CC), growth is likely to remain relatively soft.
Revenue would be flat for PSYS due to seasonal weakness in its IBM IoT deal.
Margins are likely to remain steady across the board, with some hit for the
sector coming from currency movement, and from acquisition in the case of
WPRO. Note that TECHM has deferred its wage hike – earlier a January 1 cycle –
to the next fiscal.
Will INFO announce a buyback? Will top-end of guidance be in double digits?
We expect INFO to guide 7-9% CC growth for FY18, on the back of a relatively
weak exit in 2H. That implies a CQGR of 2.2-3%. INFO is the only remaining
company among the top-tier that is yet to reward its shareholders with a
buyback, dispensing some of the idly-lying cash (apart from WPRO, which
cannot announce a buyback before June). That could be likely on April 13, 2017.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
April 2017
1
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
Company Name
Cyient
HCL Tech
Hexaware
Infosys
KPIT Tech
L&T Infotech
Mindtree
Mphasis
NIIT Tech
Persistent
TCS
TechM
Wipro
Zensar