X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IT Sector: Revenue analysis of the Big 4 (1Q FY13) - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 6, 2012

    IT Sector: Revenue analysis of the Big 4 (1Q FY13)

    Background: In light of the recently announced 1QFY13 results, this article compares the quarter-on-quarter (Q-o-Q) revenue drivers of the Big 4 Indian IT companies, with a view to understand which of these drivers were sector specific versus company specific. The Big 4 are, of course, HCL Tech, Infosys, TCS and Wipro.

    Revenue and its key components: Across the IT services sector, revenue growth can be attributed to the following factors/drivers:

    1. Volume (person hours worked),

    2. Realization/Pricing (the billing rate charged to customers),

    3. Utilization (the ratio of the total billable employees who actually worked on projects to the total number of employees available to work on projects for a particular period),

    4. Currency (the translation gain/loss that occurs while converting the revenue from the respective local currency to Indian rupee).
    The table below summarizes the results of the Big 4 based on the above parameters.

    Table1: 1QFY13, Q-o-Q growth of key parameters
    Q-o-Q growth of key parameters HCL Tech Infosys TCS Wipro
    Volume 4.6% 2.7% 5.3% 0.8%
    Realization/Pricing 2.7% -2.9% -1.2% -0.5%
    Utilization -2.8% -1.4% 0.7% 1.8%
    Rupee against US $ -10.0% -10.0% -10.0% -10.0%
    Note: For HCL we used 4QFY12 as its last financial year ended in June, 2012.

    With reference to the table above, we note the following:

    Volume: While HCL Tech and TCS reported Q-o-Q volume growth to the tune of 4.6% and 5.3% respectively, Infosys's volume growth was sub-par at 2.7%. And, Wipro's woes continued with a volume growth of only 0.8%. For Wipro, 1QFY13 was in fact the third consecutive quarter in which it continued to underperform its peers with respect to volume growth.

    Realization/Pricing: The Q-o-Q pricing decline for Infosys was more pronounced at nearly 3%, while TCS and Wipro saw price declines of roughly 1% and 0.5% respectively. Interestingly, during the same period, HCL Tech saw a price increase of roughly 3%.

    Note: The Q-o-Q constant currency growth figures of each of the Big 4 IT companies and their respective figures for volume growth were used to calculate the effect on pricing.

    Utilization: Q-o-Q analysis reveals that utilization for Infosys and HCL declined 1.4% and 2.8% respectively. At the same time, utilization for TCS and Wipro registered increases of 0.7% and 1.8% respectively. These figures do not consider the deployment of trainees.

    Currency: The rupee depreciated by approximately 10% against the US dollar during the last quarter. The impact of this was uniformly felt across the Indian IT sector, including HCL Tech, Infosys, TCS and Wipro.

    Conclusions: Sector or Company Specific drivers?

    Volume: Our assessment indicates that volume growth has been non-uniform across the Big 4, and so it is more of a company specific rather than a sector-wide factor.

    Pricing: We believe that pricing decline has impacted the entire sector. In an earlier article we pointed out why pricing can affect the industry as a whole, and that Infosys may be setting the stage for a price competition. We hold that view even though HCL Tech has seen a price increase, while the other three companies have experienced price declines as expected.

    Utilization: This too seems to be company rather than sector specific with each of the Big 4 IT companies performing differently in terms of efficiency. While the relatively higher volume growth for HCL at a lower utilization is commendable, the sequential increase in volume and utilization for TCS appears to be on expected lines. Wipro seems to be doing its best to improve on the efficiency front, as its volume growth has been dwindling. And, Infosys's utilization seems to have fallen behind.

    Given the current challenging and competitive environment, we believe that the Big 4 IT companies will focus on volume growth, while compromising on the pricing front.

     

     

    Equitymaster requests your view! Post a comment on "IT Sector: Revenue analysis of the Big 4 (1Q FY13)". Click here!

    1 Responses to "IT Sector: Revenue analysis of the Big 4 (1Q FY13)"

    Sagar

    Sep 7, 2012

    I did not understand how utilization is related to revenue growth, in my view these two things are unrelated. however article says utilization is one of the revenue growth driver.

    Like 
      
    Equitymaster requests your view! Post a comment on "IT Sector: Revenue analysis of the Big 4 (1Q FY13)". Click here!
     

    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT


    Aug 22, 2017 (Close)

    MARKET STATS