马来银行-印度-IT行业-印度IT行业：印度卢比踢球人-20180925-32页_1mb

India IT Sector Summary

Core Content

The India IT sector is experiencing a positive outlook driven by improving demand, favorable currency movements, and the growth of digital contracts. Analysts from Maybank Kim Eng have revised their forecasts for several IT companies, adjusting revenue and earnings expectations based on the impact of USD/INR fluctuations and the increasing share of digital contracts. The sector's overall EPS is expected to rise by 0.5–8.2%, with some companies benefiting more from the current trends than others.

Main Points

• Currency Impact: The USD has strengthened against EUR, GBP, and AUD, which could have an adverse impact on USD revenue for IT companies. However, the INR has weakened, boosting INR revenue and EBIT margins. The INR depreciation tailwinds are expected to raise EPS by 0.5–8.1%.

• Revenue Growth Expectations:

  • The IT sector is expected to grow at 7–9% in FY19E and 9–11% in FY20E.
  • Digital contracts are moving from proof of concept to actual contracts, contributing to revenue growth.
  • Mid and smaller IT companies are forecasted to see higher USD revenue growth (13.4–24.2%) compared to the top-5 companies (6.3–10.7%).

• EPS and EBIT Margins:

  • Every 1% change in USD/INR affects EBIT margins by 20–40bps and earnings by 1.5–2%.
  • EBIT margins are expected to rise by 37–113bps for FY19–21E due to the impact of currency movements and improved operational efficiency.
  • Companies like INFO, TCS, and TECHM are expected to benefit the most from the changes in EBIT margins.

• Rating Changes:

  • Wipro is upgraded from SELL to HOLD.
  • Persistent Systems (PSYS) and Cyient (CYL) are upgraded from HOLD to BUY.
  • Top picks include TECHM, HCLT, and TAKE.

Key Information

• Currency Exposure:

  • Most IT companies hedge 6–12 months of receivables.
  • Companies like TCS and TECHM hedge for more than a year, while INFO and PSYS hedge for shorter periods.
  • Open positions are 25–30% of net exposure, with natural hedging at 35–45%.

• Revenue Mix:

  • USD accounts for the majority of revenue for most IT companies, with some having a significant share of revenue in other currencies.
  • The geographical revenue mix shows that the US is the largest contributor, followed by Europe and others.

• Valuation and Target Prices:

  • The NSE IT Index is trading at 18.2x 1-year forward EPS, close to 1SD above its 10-year mean.
  • Companies are valued based on their P/E multiples, with some being at a discount or premium to their 5-year averages.
  • Target prices (TP) have been raised for several companies due to improved EPS forecasts.

• Company-Specific Analysis:

  • Tata Consultancy Services (TCS): Expected to lead in revenue growth, with a target price of INR2,110. EPS CAGR is projected at 20.2% for FY19–21E. Risks include visa rule changes and delayed large deals.
  • Infosys (INFO): Matches TCS in USD revenue growth, with a target price of INR755. EPS CAGR is 13.6%, but the stock is still at a discount to TCS. Risks include leadership exit and visa rule changes.
  • HCL Technologies (HCLT): Strong growth from new contracts and acquisitions, with a target price of INR1,240. EPS CAGR is 15.9%. Risks include market share loss in IMS and delayed monetisation of acquired IPs.
  • Wipro (WPRO): Shows signs of recovery, with a target price of INR315. EPS CAGR is expected to be 16.5%. Risks include delayed recovery in healthcare and restructuring challenges.
  • Tech Mahindra (TECHM): Expected to see EPS CAGR of 16.5% due to improved base business and enterprise growth. Target price is INR860. Risks include delayed bottoming of telecom business and integration issues.
  • Mphasis (MPHL): Revenue CAGR is projected at 13.9%, with a target price of INR1,230. Risks include client concentration and execution challenges.
  • Hexaware Tech (HEXW): Revenue CAGR of 14.8% is expected, with a target price of INR470. Risks include client concentration and execution risk.
  • Cyient (CYL): Benefiting from INR depreciation, with a target price of INR800. EPS CAGR is 20.4%. Risks include client concentration and execution risk.
  • Persistent Systems (PSYS): Expected to see EPS CAGR of 16.5% due to improved IBM reseller business and digital growth. Target price is INR950. Risks include IP-led business weakness and digital performance.
  • TAKE Solutions: Strongest EPS growth, with a target price of INR285. EPS CAGR is 16.5%. Risks include execution and client concentration.

Summary of Upgrades and Downgrades

Summary of Earnings Sensitivity

• EPS Sensitivity to USD/INR:

  • Every 1% change in USD/INR affects EPS by 1.5–2%.
  • Companies like INFO, TCS, and TECHM are expected to benefit the most from the current USD/INR trends.

• P/E Multiples:

  • The P/E multiple for most companies is aligned with their 5-year averages.
  • Some companies are valued at a discount or premium to reflect their growth prospects and risk profiles.

Conclusion

The India IT sector is showing signs of recovery and growth, driven by improved demand, digital contract growth, and favorable currency movements. While the USD appreciation against certain currencies may pose challenges, the INR depreciation is providing a tailwind for INR revenue and EBIT margins. Analysts have upgraded several companies to BUY or HOLD based on improved earnings outlooks and valuations, with a focus on companies with strong growth prospects and better risk-reward profiles.