Analysts' view on IT Sector: Revenue set to grow

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Analysts' view on IT Sector: Revenue set to grow
Information technology companies, which accounts for nearly 6% of the GDP, is expected to report a good revenue growth in the April to June quarter, also the first quarter of FY12. But the companies could report pressure on margins due to wage hikes, taxes and visa costs.

Most analysts expect the top-line growth to be between 4% and 5% quarter-on-quarter (q-o-q), and 20% year-on-year (y-o-y).

They analysts are bullish in the backdrop of worrisome global environment because of improving demand and spending outlook for the year.

Even though most of the estimate on the macro economy has been revised downward, the effect is not the same for the IT, as the companies are witnessing normal seasonal spending, and secular IT spending drivers

Accenture and Oracle results were better than expectation which has also bolstered the positive view.

Large-caps like Tata Consultancy Services (TCS), Infosys, Wipro, HCL Technologies and Cognizant will grow revenues sequentially at an average rate of 4.5% (40 basis points more than that previous quarter). This is the reason why experts believe that IT industry can report 24% revenue growth for FY12.

And considering that Infosys performance was below expectation last quarter, it will be best placed to surprise on the upside on revenue growth.

Some analysts expect Infosys to raise earnings guidance to 4% due to reflect better pricing and favorable currency. They also believe that TCS and HCL will report strong numbers.

One of the international brokerage house consider that wage hikes will effect the IT operating profit margin by 100-150 basis points.

Meanwhile, one of the local analysts believe that wage inflation will be offset by campus hiring. Incremental visa costs will also impact margins, however it has been reported by certain section of the media companies have slowed visa applications. With the STPI tax deductions ending from the next fiscal, tax rates for the sector are set to increase by approximately 320 basis points q-o-q with the exception of Infosys.

OneIndia Money

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