• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
 
May 5, 2009
India IT Services
Quick Comment:Read-through from CTSHResults
Comforting
 
but Not Euphoric:
We believe theindustry’s revenue outlook still appears to be scrapingthe bottom. CTSH reported revenues marginally aheadof guidance, but earnings were in line with consensusexpectations. Q2CY09 guidance is for +2% qoq revenuegrowth and is in line with consensus expectations.Adjusting for ~4% higher working days in Q2, revenueguidance implies sequential decline in Q2 (vs. +1% qoqadjusted revenue growth in Q1) on a like-for-like basis.
2009 Guidance:
CTSH maintained full-year revenueguidance but lowered GAAP EPS guidance by 1 cent, toUS$1.53, primarily due to FX losses and lower otherincome.
Management is not seeing any signs of a materialrebound in 2H:
However, the pace of revenue declinedoes not appear to be accelerating materially.
Revenues and margins for India IT services vendorshave been less volatile than those of their regionaltechnology peers have.
Consequently, although therevenue decline was not as severe in the last fewquarters, relative revenue growth rates are likely to bemuted in the event of a turnaround, we believe.Expectations of a sharp turnaround or sharply improvedgrowth rates appear a bit stretched, in our view.
Valuations are key:
CTSH currently trades at 18xconsensus C09e EPS, a 10-40% premium to India ITpeers, which are now trading at 12-15x FY10e EPS foran EPS CAGR of 0-5% during the FY09-11e period. Webelieve P/E multiples for the sector could erode over thecoming quarters.
For analyst certification and other importantdisclosures, refer to the Disclosure Section,located at the end of this report.
+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not beassociated persons of the member and may not be subject to NASD/NYSE restrictions oncommunications with a subject company, public appearances and trading securities held by aresearch analyst account.
Morgan Stanley India CompanyPrivate Limited+
Vipin Khare
Vipin.Khare@morganstanley.com+91 22 2209 7765
Gaurav Rateria
Gaurav.Rateria@morganstanley.com+91 22 2209 7160
MORGAN STANLEY RESEARCHASIA/PACIFIC
Industry View
Cautious
 
 
2
MORGAN STANLEY RESEARCHMay 5, 2009India IT Services
CTSH Mar09 Results:
Revenues of US$745.6m (-1%qoq,+16%yoy) were ahead of management’s guidance (-3.5%qoq).However, Q2 guidance was muted, and the full-year guidancewas maintained despite better-than-guided Q109. CTSH isnow forecasting 2.5% qoq revenue growth for Q2-Q4, despitethe better-than-expected Q1.
Exhibit 1
CTSH 2009 Guidance (US$ m, %)
US$ m 1Q 2Qe 3Qe 4QeCY09e
Revenues 746 765 784 8053,100% qoq -0.9 2.5 2.5 2.510.0Diluted EPS (GAAP) 0.38 0.38 0.38 0.391.53% qoq 0.0 0.5 0.5 0.56.3
Source: Company data, Morgan Stanley Research
 
 
3
MORGAN STANLEY RESEARCHMay 5, 2009India IT Services
Disclosure Section
The information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley Asia Limited (which accepts theresponsibility for its contents) and/or Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z, regulated by the Monetary Authority ofSingapore, which accepts the responsibility for its contents), and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number200008434H, regulated by the Monetary Authority of Singapore, which accepts the responsibility for its contents), and/or Morgan Stanley TaiwanLimited and/or Morgan Stanley & Co International plc, Seoul Branch, and/or Morgan Stanley Australia Limited (A.B.N. 67 003 734 576, holder ofAustralian financial services license No. 233742, which accepts responsibility for its contents), and/or Morgan Stanley India Company Private Limitedand their affiliates (collectively, "Morgan Stanley").For important disclosures, stock price charts and rating histories regarding companies that are the subject of this report, please see the MorganStanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan StanleyResearch at 1585 Broadway, (Attention: Equity Research Management), New York, NY, 10036 USA.
Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed andthat they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in thisreport: Vipin Khare.Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.
Global Research Conflict Management Policy
Morgan Stanley Research has been published in accordance with our conflict management policy, which is available atwww.morganstanley.com/institutional/research/conflictpolicies.
Important US Regulatory Disclosures on Subject Companies
As of March 31, 2009, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered inMorgan Stanley Research: Infosys Technologies, Tata Consultancy Services.Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Mindtree Ltd..In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Genpact Limited, HCLTechnologies, Hexaware Technologies Limited, Infosys Technologies, Mindtree Ltd., Patni Computer Systems, Tata Consultancy Services, Wipro Ltd.,WNS Global Services.Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment bankingservices from Mindtree Ltd., WNS Global Services.Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking clientrelationship with, the following company: Genpact Limited, HCL Technologies, Hexaware Technologies Limited, Infosys Technologies, Mindtree Ltd.,Patni Computer Systems, Tata Consultancy Services, Wipro Ltd., WNS Global Services.Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the pasthas entered into an agreement to provide services or has a client relationship with the following company: Mindtree Ltd., WNS Global Services.The research analysts, strategists, or research associates principally responsible for the preparation of Morgan Stanley Research have receivedcompensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues andoverall investment banking revenues.Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.
STOCK RATINGS
Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below).Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not theequivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, sinceMorgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan StanleyResearch, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon asinvestment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings)and other considerations.
Global Stock Ratings Distribution
(as of April 30, 2009)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongsideour ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks wecover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relativeweightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buyrecommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.
Coverage Universe Investment Banking Clients (IBC)Stock Rating Category Count% ofTotalCount% ofTotal IBC% of RatingCategory
Overweight/Buy
668 30%20535%31%
Equal-weight/Hold
1005 45%27246%27%
Not-Rated/Hold
33 1%81%24%
Underweight/Sell
517 23%10818%21%
Total
2,223 593
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individualcircumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom MorganStanley or an affiliate received investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O or Over) - The stock's total return is expected to exceed the total return of the relevant country MSCI Index, on a risk-adjusted basisover the next 12-18 months.Equal-weight (E or Equal) - The stock's total return is expected to be in line with the total return of the relevant country MSCI Index, on a risk-adjustedbasis over the next 12-18 months.Not-Rated (NR) - Currently the analyst does not have adequate conviction about the stock's total return relative to the relevant country MSCI Index ona risk-adjusted basis, over the next 12-18 months.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...