Nomura Financial Advisory and Securities believes that USD revenue growth on a sequential basis could be materially depressed to the tune of 150bps across tier-1 IT companies in 3QF, on depreciation of most currencies against the USD. Tier-1 IT companies (excluding CTSH) derive between 30-45% of revenues in non-USD currencies.
''Our current estimates build in 2.9% q-q USD revenue growth in 3QF for tier-1 IT in aggregate, which could effectively go down to 1.5% q-q due to the cross-currency impact . If this is the case, even in a scenario of 4QF growth expectations remaining intact, our FY15F revenue growth estimates for tier-1 IT in aggregate can see a 50bps reduction to sub-13% y-y (vs. 14.2% y-y in FY14),'' it said.
''Weaker seasonality in 3Q, cross currency impacts and slower European growth could be overhangs for growth in the near term,'' said Nomura.
''However, we stay OW the sector and would use any corrections to add positions as we remain constructive on medium-term demand. We expect the US to grow better (as the improved macro situation starts to be reflected in better demand); continuation of cost cut initiatives at clients and market share gains for tier-1 IT to drive Europe/IMS demand and incremental opportunities from New technology areas such as social, mobile, analytics and cloud,'' it added.
''We expect 15% revenue and EPS CAGR over FY15-17F for tier-1 IT companies, with potential upside to our FY16F growth expectations if US demand improvement tracks the macro improvement. HCLT (Buy; TP: Rs 1,900) and CTSH (Buy; TP: USD 60) remain our top Buys in tier-1 IT,'' it opined.
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