Consensus estimates suggest further downside risks to FY17 revenue growth, given ask rates of 2.6-3.8% in H2FY17, a tough proposition in the seasonally weak second half of the financial year. The risk to Infosys’s estimates is the highest, considering ask rates of 3.4% in H2FY17 and expectation of flattish margin in FY17.
TECHM’s steep 3.8% CQGR is not out of bounds, considering Comviva seasonality in Q4 and target integration in Q3. Even growth acceleration as a result is justified at TECHM for FY18, given bottoming of Telecom revenues and full year impact from Target. Revenue growth in FY18 is expected to accelerate across the board, assuming flat Rs/$ y-o-y , while operating margins are expected to be flat to marginally up. Lest the rupee depreciates further to 68-69/$, there is downside risk to estimates against the backdrop of prevailing macro.
Consensus revenue growth estimates have come off by 2 -5pp since end-FY16, led by the worsening macroeconomic environment and cross-currency movements (mainly depreciation of GBP against % after the Brexit vote).
Overall, we see room for further moderation to prevailing growth estimates implied in full- year consensus numbers.
We note that revenue growth in FY18 is expected to accelerate v/s FY17, based on current estimates, with the exception of HCLT, which has higher inorganic contribution this year v/s the next.