Sanjeev Hota, assistant vice-president, research (IT), Sharekhan, tells Krishna Merchant that growth in the IT sector will taper in FY13 as spending will decline, but regulatory spending will save the day. Edited excerpts:
Is Infosys’ June quarter results in line with your expectations?
Yes, the performance is largely in line with the expectations. There was not much variance on the revenue front. However, the profit after tax at Rs 1,722 crore was marginally below expectations. We had expected the net profit to be Rs 1,742 crore.
What about the guidance?
We are disappointed. The company expects the full year EPS at Rs 128-130, as compared to the market expectation of Rs 132. This has caused the stock to fall sharply after results.
What is your outlook on outsourcing demand, as there are concerns in Europe that the sovereign debt crisis may spread to Italy and Spain?
The outsourcing demand will not get affected for FY12, because the budgets are already finalised and most of the spending comes from the US. Earnings of Accenture and Oracle further emphasise the outsourcing demand for FY12 will remain intact. Southern Europe is still a concern, but their contribution to revenue is below five per cent. However, if the contagion is going to spill over, it may affect outsourcing demand in FY13.
The BSFI segment grew at 3.4 per cent sequentially. Do you expect growth in this segment to taper?
The BFSI segment saw a strong growth in FY10, as it was a year of merger and acquisitions (M&A). The top four companies (TCS, Wipro, Infosys and HCL Technologies) reported robust BSFI growth, as it was right after recession and there was high spending in M&A.
This kind of growth will taper off in FY13 because spending will decline. However, regulatory spending may drive growth until FY14.
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Do you expect a similar performance from the rest of the frontline IT companies, such as TCS and Wipro?
We expect seven per cent top line growth for TCS on a sequential basis, and it will continue to lead the sector. However, the margins will be affected due to wage rises. HCL Technologies, though, will report strong results, as they did not raise wages in the recently concluded quarter, and we may also see Ebitda margin expansion. Wipro is still going through organisational restructuring, and we are not very optimistic on the earnings. It may report five per cent quarter-on-quarter decline and a flattish revenue growth.
Is Infosys a good buy at current levels?
At around Rs 2,700, investors can perhaps buy from a 12-month perspective.