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Infosys Technologies - Results Update. Excellent quarter : revenue growth highest in the past nine quarters. Infosys’ 3QFY10 performance was significantly better than street expectations. Revenues grew 6.7% qoq to US$1,232 mn, highest in the past nine quarters. Consistent with market expectations, BFSI vertical revenue led revenue growth and up 10.3% qoq. Operating margin increased 90 bps qoq to 35.5%, led partly by write-back of provisions. Net income of Rs15.82 bn was ahead of expectations by 5.7% and led by better-than-expected revenue and OPM performance. 4QFY10E revenue guidance muted and extremely conservative. Infosys has guided for 1.5% US$ growth for 4QFY10 (1% at the upper-end excluding McCamish acquisition). The guidance is excessively conservative , even after accounting for the adverse impact of seasonality. 4QFY10 EPS guidance of Rs25.83 (-8.3% qoq) assumes 150 bps decline in margin. Infosys has raised FY2010E EPS guidance to Rs107, versus Rs100 earlier. Infosys has manag...

NIIT Ltd - Results Update. NIIT Revenues rise by about 10% YoY . Revenues rose by 10% YoY and came in marginally below street stimates. The individual learning business (ILS) and corporate learning business (CLS) led the overall growth with 15% and 11% gains, respectively. However, on a QoQ basis, CLS revenues remained almost flat, despite the rupee depreciation. Schools business also grew by 17% YoY. New businesses like IFB, Imperia, Uniqua, etc disappointed. Future prospects The individual learning business is expected to witness a slowdown in growth rates in FY10 to about 16%. New initiatives are expected to gather steam over the quarters with higher acceptance of the courses. However, incremental growth is expected to be muted. Corporate learning businessis expected to grow at 8%. This may prove to be optimistic in the back drop of further deterioration in the US economy and scale up issues faced by the company. Margins to improve (YoY basis) on the back of better capacity utiliz...

Tata Consultancy Services TCS - Results Update TCS' Volumes de-grow by 2.7% on an organic basis; average realizations down 2% QoQ. In USD terms, the revenues de-grew by 3.4% QoQ. This was despite a contribution of about 4.49% from the CGSL consolidation. Thus, organically, revenues were lower by more than 7% QoQ. Existing clients holding back projects, new wins along expected lines Volumes degrew as existing clients held back projects. TCS has exposure to several clients, which are facing revenue and profit falls on a yearly basis. These clients have held back most of the discretionary projects and this has increased the uncertainties for the company. Pricing pressures continue The management has indicated that, pricing pressures continued in 4QFY09. While clients have been demanding lower prices at the time of re-negotiation of contracts, the company has also faced several out-of-the-turn pricing negotiations. The budgets of several clients have been cut and they are looking at ...

HCL Technologies - Reader’s Digest’s deal part of Q3 deal win. HCL Technologies (HCL Tech) has announced that it has signed an information technology (IT) outsourcing engagement worth over US$350 million with Reader’s Digest Association spread over seven years. Though HCL Tech won record deals of US$1 billion in Q3FY2009, the company is likely to incur an upfront transaction cost of US$25 million for clients. Hence, there is a risk to the company’s earnings, as the upfront transition cost on some of the new deals may not be supported by increased volume from the clients in the current difficult environment. Further, the rupee has depreciated significantly, close to 5.2%, in the last one month and is expected to remain weak in coming days. The depreciation in the rupee is likely to again expand HCL Tech’s unrecognised foreign exchange (forex) losses. In Q3FY2009, the company’s unrecognised forex losses expanded to US$207 million from US$156 million due to the depreciation in the rupe...

The macro business environment has worsened further since the last commentary by Infosys Technologies’ (Infosys) management. In the recent interaction, the management has indicated higher than expected pricing pressure, project cancellations and considerable decline in the IT budgets of its clients. The worsening situation has been further aggravated by the banking and financial services clients, with large global players like the Bank of America , Citibank , American International Group (AIG) and the Royal Bank of Scotland (RBS) looking for further bailout packages. In addition, the possible nationalisation of banks and the anti-outsourcing rhetoric getting shriller put a question mark on the volume growth in the next fiscal. On the positive side , the continued depreciation in the rupee has emerged as a significant tail wind for tech companies including Infosys. The rupee has depreciated by around 6.5% in the past one month alone and is likely to remain weak. Infosys, with a relat...

Mphasis BFL Results Update: 1QFY09 (November - October fiscal) results were better, on higher revenues and margins. Volume growth of about 6% QoQ in IT services is encouraging in this macro scenario. Third consecutive quarter of 6 - 7% volume growth; HP support is a differentiator. According to the management, the overall volume growth was 4% with IT services reporting a 6 - 7% rise, and ITO reporting a 10 - 12%. BPO business continued with a volume de-growth. This is the third consecutive quarter of 6 - 7% volume growth for IT services which is impressive. Mphasis saw a faster growth in European geography, which contributed about 22% to overall revenues.On-site revenues continued to help overall growth rates. On-site revenues contributed to 28% of overall revenues as against 26% in the preceding quarter.The initiation of several projects in recent quarters has led to more on-site jobs before they are transitioned off-shore. BPO business - muted growth continues. BPO revenues de-grew ...

Opto Circuits India -Result highlights. Strong performance continues; concerns overdone. Opto Circuits (Opto) has reported a top line growth of 65.7% to Rs211.0 crore for Q3FY2009. The revenues were driven by a 20% growth in the non-invasive segment (excluding Criticare Systems [Criticare]) and an 81.9% growth in the invasive segment. Criticare contributed revenues of Rs40.4 crore. On excluding the contribution from Criticare, the organic growth was ~34%. Opto’s operating profit margin (OPM) expanded by 60 basis points year on year (yoy) to 28.9% in Q3FY2009. The margins are impressive considering the consolidation of Criticare, which has relatively lower margins.Consequently, the operating profit grew by 69.3% to Rs60.9 crore in Q3FY2009. Driven by a strong operating performance, Opto has reported a net profit of Rs52.6 crore, up by 47.2% yoy. The net profit reported by the company is marginally ahead of our estimate of Rs49.0 crore. The net profit was aided by a foreign exchange (fo...

Zensar Technologies. As was the case last year, Zensar has introduced an offering for its customers, which assures a 10% savings in cost over a 10-month time frame by improving the processes of the customer company. Zensar is merging its wholly - owned subsidiaries Zensar ThoughtDigital LLC and Zensar OBT Technologies Inc with Zensar Technologies Inc. Challenges have emerged in the enterprise applications business with both, SAP and Oracle related implementations facing a slowdown. Future prospects. We expect Zensar to achieve revenues of Rs.9.49bn in FY09 and Rs.9.5bn in FY10. While volumes are expected to rise by about 6%, expected billing rate pressures and rupee appreciation are expected to impact revenue growth. EBIDTA margins are expected to be almost flat as gains from higher off-shore content and better resource utilization should set off the impact due to salary increases and expected rupee appreciation. Higher revenues from value added services are also expected to restrict t...

Subex Results are in-line with estimates. No major impact of the macro scene as yet on Subex, as reflected by steady order inflows. Stock price has declined significantly over past few quarters. While we are upgrading the stock because of the sharp decline in price, we still recommend ACCUMULATE as the macro scene remains challenging. Uncertainty over FCCB conversion remains. Our FY09 EPS earnings estimate of Rs.13 does not include MTM losses on FCCBs. The price target stands reduced to Rs.55 from Rs.65 earlier.