Technology stocks saw buying interest on hopes of better earnings in the quarter ended March 2015 after unlisted rival Accenture raised its outlook for the current calendar year 2015. IT majors TCS and Infosys surged 2-4 percent intraday Friday.
Accenture reported fiscal Q215 revenues of USD 7.49 billion, above its guided range of USD 7.15-7.4 billion (adjusted for currency) and also above the USD 7.36 billion street estimate. The company raised its full-year net revenue growth guidance to 8-10 percent Y-o-Y in local currency (against its previous 5-8 percent Y-o-Y guidance).
Consulting net revenue was USD 3.84 billion, up 4 percent year-on-year and 11 percent in constant currency terms while outsourcing net revenue was USD 3.65 billion, an increase of 6 percent year-on-year and up 13 percent in constant currency terms. Operating margins grew 30 basis points Y-o-Y at 13.6 percent.
According to Morgan Stanley, following muted commentary from TCS (around a slow start in January-February) and a weak Q4 outlook from some mid-cap peers (Mindtree, Persistent, KPIT), Accenture's February-15 quarter revenues coming in above guidance and beating the street estimate offers a positive datapoint for the industry.
Nomura too believes the results' read-across is positive for India IT from a demand perspective, as they indicate growth momentum improvement in the US on the back of macro improvements and continuation of the strong growth in outsourcing and in Europe.
However, Accenture now expects currency to more adversely affect revenues, by 8 percent Y-o-Y against 5 percent previously. Accenture follows September-October as its financial year.
Like Accenture, the India IT vendors should face significant cross currency headwinds in the March-15 quarter and in FY16, said Morgan Stanley. So far, two large vendors have indicated cross currency headwind of 200-250 bps Q-o-Q in the March-15 quarter.
Interestingly, despite significant currency headwinds buffeting the topline, Accenture has maintained its operating margin guidance of 14.4 percent-14.6 percent (excluding the restructuring charge).
Despite continued market concerns about pricing pressure for India IT vendors, so far none of the large vendors have indicated any signs of such pressure at a portfolio level. Accenture management indicated that, despite a continued competitive environment, it has seen progression in pricing in certain parts of the business over the past six months, said Morgan Stanley.
As per Accenture's management, digitisation and rationalisation are driving growth. This is in line with the commentary from Indian IT managements (Cognizant: "dual mandate", Infosys: "renew and new", Wipro : "run and change").
Nomura and Ambit remain positive on the demand environment for Indian IT services. Nomura looked for around 15 percent revenue CAGR in constant currency over FY15-17F for tier 1 Indian IT.
At 11:50 hours IST, the scrip of Tata Consultancy Services climbed 1.7 percent to Rs 2,556 and Infosys rallied 3.6 percent to Rs 2,221.60 on the Bombay Stock Exchange.
Posted by Sunil Shankar Matkar
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