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  • Govind Agarwal - Research Analyst-Institutional Equities, Prabhudas Lilladher

    Govind Agarwal

    Research Analyst-Institutional Equities, Prabhudas Lilladher

    DATE: January 22, 2016, 12:00 PM

    SUBJECT: Q3 IT results review




    Hello and welcome to a webchat with Govind Agarwal, Research Analyst-Institutional Equities at Prabhudas Lilladher


    Hello and welcome!

  • A


    What is your take on Mindtree for the third quarter especially with regards to margins and the acquistion of Magnet 360? Further, what is the outlook for the stock for FY16 and target price?


    MindTree’s Q3FY16 revenue was above expectation, but margin and EPS were soft. The company was able to contain the effect of Chennai floods, which had a 10bps impact on revenue with some additional costs. Mindtree is ahead of its peer group in investing in digital business (evident by acquisition of Magnet 360 – a Salesforce Platinum Consulting Partner for a consideration of US$50m) and this, we believe, will sustain higher revenue growth. We have a BUY recommendation opn the stock with a Target Price of Rs1,580 (17x Dec?17 EPS)

  • P


    What is your call on Wipro with regards to dollar revenue growth in the third quarter and what is your expectation for dollar revenues in the fourth quarter? Will its share from the European region likely to grow in the next fiscal? What is your target price of the stock?


    Wipro’s Q3FY16 constant currency revenue growth was marginally ahead of our estimates. IT Services’ (CC) revenue grew by 1.4% QoQ , while USD revenues grew 0.3% QoQ. Company has guided for 2-4% QoQ revenue growth in Q4FY16 and we expect revenues to be in the guided range. Revenues from Europe are likely to grow at a faster pace than company average. This will be driven by better outlook shared by company and investments made by company in Europe. Our target price is Rs690 based on 16x Dec-17 EPS.

  • V


    What is your overall view on the third quarter earnings from IT majors?


    December quarter earnings have been slightly better than expectations. Companies have been able to absorb the impact of seasonality (lower number of working days and shutdowns) and Chennai floods. Infosys was the biggest positive surprise in terms of revenue growth and March quarter outlook. Early comments on CY16 IT budgets don't indicate any cause of concern and so far seems to be like past years. Depreciation of Indian Rupee will also aid margins and earnings for the IT companies.

  • R


    What is your take on the new management structure under the leadership of Vishal Sikka at Infosys? Further, what about pricing pressures and its impact on margins going forward? What is your target price for the stock?


    We are positive on the new management structure under Dr Sikka's leadership and that is reflected in the quarterly performance. Infosys’ Q3FY16 performance was comprehensively ahead of expectation with solid revenue beat, healthy deal wins and employee addition driving a better growth outlook, this was third quarter of positive surprise. Benefits of strategic initiatives such as zero bench, zero distance, design thinking etc. is visible across sales and delivery organization and client engagements. Infosys will likely achieve industry leading growth in FY16 itself and we expect further improvement in FY17/18. Pricing pressure will remain in commoditized services and companies will have to absorb the impact by higher efficiency and automation. We believe Infosys will be able to offset the pricing pressure and maintain margins. Management has also maintained EBIT margin range of 24-26%. Infosys is our top pick with TP of Rs1,500 based on 20x Dec?17 EPS.

  • S


    For the sixth quarter in a row TCS missed the Street’s revenue estimates during the third quarter. What is your call on the stock in view of the strong under performance compared to its peers?


    TCS revenue growth in the past one year has been impacted by weakness in Dilligenta, Japan and South America and as a consequence, YoY CC revenue growth stood at 9.9% in Q3FY16. Management has indicated bottoming out of South America and Dilligenta business. Early indications for CY16 IT budgets are positive and company doesn’t expect any cut in IT budgets. Overall, we believe TCS should be able report CC revenue growth of ~12% YoY in each of FY16/17. Revenue growth moderation in last 6 quarters is largely factored in almost ~20% multiple de?rating (21x to 17x 1 year forward PE) over the past 12 months. While the stock lacks near?term triggers, we find stock attractive at 16?17x 1 year forward PE with a 12?15% EBIT growth profile.

  • M


    Sir, i bought Majesco 599 shares @ 563. now its about to reach 587. suggest me what should i do now.. previously i got huge loss in trading in other shares.. plz suggest Sir, thx


    We don't cover Majesco.

  • A


    HCL Tech has been the best performer among IT majors in terms of constant-currency revenue growth for the third quarter. However, margins seem to disappoint. What is your outlook for the stock for the fourth quarter and any target price?


    HCL Tech reported Dec quarter results ahead of street estimates on revenues and margins. Revenues grew 2.1% QoQ in CC terms, highest among the top?4 IT companies. Revenue growth is encouraging against the backdrop of seasonal weakness and Chennai floods (~35% employees in Chennai against 13?18% for peers). EBIT margins were 20% in Dec quarter and company has re?iterated EBIT margin range of 21?22%, which implies margin improvement, going forward. Management is optimistic on FY16 revenue growth and expects a strong H2FY16. Company has won eight transformational deals during the quarter with a total deal size in excess of US$1bn. We expect strong revenue and EBIT growth in H2FY16 and that should drive stock performance. We have a BUY on HCL Tech with a Target Price of Rs1,030 based on 16x Dec?17 EPS.

  • P


    NIIT Technologies has posted just over 10% sequential growth in net profit for the third quarter. Is the company witnessing margin expansion which is contributing to the profitability? What is your recommendation on the stock at current levels and what is the price target?


    Profit growth for NIIT Tech in Q3FY16 was mainly due to better EBITDA Margins. This was the highest margin the company has reported since Q1FY12. Moreover, higher Other Income and lower Tax rate (due to increased exposure to international business) further improved the profitability. We have a BUY recommendation on the stock with Target Price of Rs650 based on 12x Dec?17 EPS. We expect further margin improvement in FY16 and revenue recovery in FY17.


    Thanks, Mr Agarwal for your time and advice. We hope to see you soon again. We also thank our readers for sending in their questions.


    Most welcome!

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