Wednesday, July 13, 2011

UID will provide great business opportunities to IT cos: Sandip Kumar Agarwal, Antique Stock Broking

13 JUL, 2011, 06.45PM IST,ET NOW 

UID will provide great business opportunities to IT cos: Sandip Kumar Agarwal, Antique Stock Broking


In an interview with ET Now , Sandip Kumar Agarwal, IT Analyst, Antique Stock Broking, speaks about the Infosys Q1 earnings and how will they augur for the IT space. Excerpts: 

What would be your view on Infosys as a stock at the current levels and how does it augur for other IT majors in terms of their earnings to be reported? 

If you see Infosys results, the most important things to note in the results were two. One was the onsite growth in the business, which was around 6.7%, while offsite was just 2.8%. Now in this business what generally happens is the project when it starts coming in, always it starts with onsite because most of the time you have to define the requirement and you have to start executing the project onsite, that is how it comes. So first of all onsite growth of 6.7% is a very positive sign. If you see the operating metric basically which are the main triggers to the margin expansion and everything, first of all if you see utilisation levels have shown improvement. We were expecting it to happen in this quarter. 

So we were not that bearish on utilisation level in last quarter when the management came with a 400 basis point margin decline guidance and they have themselves cut it down now say 250 basis point. We believe that utilisation will improve further. One more important thing to notice is till now they are only adding laterals. So now from this quarter that is joining date for fresher is always from July. So you will see the impact of wage rationalisation going forward, so that is one trigger which will come into and that will reduce the employee cost first of all.13 JUL, 2011, 06.45PM IST,ET NOW 

UID will provide great business opportunities to IT cos: Sandip Kumar Agarwal, Antique Stock Broking

Keep up to date with these results:




 

Secondly utilisation levels are different going to improve and thirdly the onsite execution, which they have done which has resulted in approximately Rs 45-50 crores of incremental subcontracting costm that will start getting off. All these three things will enable the margins to improve. We strongly believe that the company will exit the full year at max at 80-90 basis point margin decline versus FY11. Also in the next quarter itself, we believe that management will further cut down the margin decline guidance from 250 to at least 180 basis point, that is what my view is. 

This industry is like that, you have to add capacity and the capacity actually gets build after a lag. So that is the benefit which TCS was getting for last three quarters and they will continue to get in this quarter and then probably they will have to again add a lot of capacity which will have again one quarter lag. So what I am trying to say is that this quarter again you will see an industry leading growth from TCS of let's say 6.5-7%, that is what we are assuming an EPS of Rs 12.80. So it will be a good set of number. 
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