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TPI Index Q2CY12: TCV up 7%, both YoY and QoQ

Motilal Oswal | 18 Jul, 2012  | Follow Author | Add to my Favourites 
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TPI Index Q2CY12: TCV up 7%, both YoY and QoQ but down 8% YoY for H1CY12; Q3 outlook weak but Q4 may see pick-up

TPI released TCV data for Q2CY12. Key highlights:

- Global market Total contract value (TCV) in Q2CY12 was USD21.4b, up 7% QoQ and 7% YoY. However, H1CY12 TCV of large deals was USD41.4b, lower by 8% YoY. Outlook for Q3 remains weak on tough YoY compare. However a strong pipeline indicates that deal activity may pick up in Q4. It still remains unlikely that TCV in CY12 will match record high levels of CY11.

- Geographically, the dynamics were diverse, with H1CY12 TCV in Americas being flat, in EMEA down by 24% YoY whereas in APAC TCV grew 44%. Restructurings are up 39% YoY, whereas New Scope work is down 22%.

- New Scope TCV, which has averaged USD35.5b in H1 over the last 6 years, was only USD27b in H1CY12, reflecting the slowness in decisions around kick-starting new initiatives. This was the weakest H1 in terms of New Scope deals over the past 6 years. On the other hand, Restructuring TCV remained strong, with H1 TCV at USD14.4b, v/s 6-year H1 average of USD10.2b. This bodes well for HCL Tech, whose focus on chasing deals up for renewal in a
high churn market has been paying rich dividends.

- Within the ITO market, India Heritage continues to improve its market share, at the expense of Americas MNCs. The share which was 15% from CY07-09 is up to 22% during CY10-1HCY12.

- View: The recent earnings of Infosys / TCS have been divergent with Infosys reporting below estimates and TCS growing strongly. The key common feature of both the earnings is pricing concerns. Motilal oswal expect Wipro earnings also to be muted while HCL Tech should maintain its outperformance. Recent correction in valuation keeps us positive on Infosys at 13.5x FY13E and 12.7x FY14E earnings. Expect bounceback as margins stabilize with arrest in pricing decline and non-worrying volume growth. Motilal Oswal also likes HCL Tech (visibility on growth and focus on execution will support multiples). While TCS' execution continues to impress, at 17.5x FY13E earnings, Motilal Oswal believes the stock is priced for perfection!

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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