No great expectations

We expect another weak quarter: Furloughs and weak IT spending will lead to muted performance of IT companies in the December 2012 quarter. Ebitda (earnings before interest, taxes, depreciation and amortisation) margins will likely be under pressure due to lower billing days, select cases of wage revision and promotions and likely lower pricing. TCS and HCL Technologies will likely report the strongest revenue growth. IT companies have done well to manage/lower expectations for the December 2012 quarter but will have to deal with hopes of accelerated growth in FY2014. We maintain a Cautious stance on the sector.

We expect Tier-I USD revenue growth of 1.8-3.1%: We expect modest organic US Dollar revenue growth of 1.8-3.1% for Tier-I IT (including cross-currency benefit of 20-40 bps). Revenue growth will likely be impacted by (i) typical year-end shutdowns and (ii) weak IT spending with a near halt in flow business. Deceleration in revenue growth will continue with year-on-year organic growth likely to be 1.3-13.7%. TCS will once again lead the industry with sequential revenue growth of 3.1%. HCLT will likely report strong revenue growth of 2.9%, courtesy the front-ended nature of revenue from certain large deals. Tier-I names will outperform the Tier-II pack on revenue growth.

Operating margin may decline y-o-y for Tier-I companies (except HCLT): We expect flattish to 110 bps (basis points) sequential decline in Ebitda margins on lower billing days, wage revision in the cases of HCLT and Infosys and promotions at Wipro, likely lower pricing

... contd.