[T.S.R:14472] IT Sector

 

IT sector: Ever-resilient

 

Jaypee Research

10 Jun 2010

The ever-resilient IT sector
The revival in the IT sector this time has favored the big players more than the smaller ones. Vendor consolidation, easing of pricing pressures and cost management have helped sustaining a decent profitability. There is a stress on employee utilization, and delinking revenue from headcount. Large scale of operations helps in bagging large, multi-year transformational projects, as well as innovating pricing strategies.

Mid and small sized IT companies have witnessed lower volumes from existing customers as well as intense pricing pressure due to lack of scalability.

Tech research firm Forrester has projected annual growth of 9.3% in 2010 for IT sector. However, slow growth in allocation of large outsourcing projects can play spoilsport. None of the big players, except HCL Tech have so far announced new large contract value deals ($500 million+). TCS's $900 m contract with Britain's Personal Accounts Delivery Authority is still under review with the new government. Outsourcing as an industry will grow, but big deals may be spread out over a number of players, thus affecting the volume growth of a single player.

Our ratings on front-line stocks
In absence of any significant negative news on the revenue side, and continuous claims by the IT companies that their business will not be hurt by the European crisis, and they looking to expand business in Europe, we retain our ratings on our coverage universe of Infosys, TCS and Wipro. We maintain BUY on Infosys, TCS and Wipro with 12�]m targets of Rs. 3,150, Rs. 888 and Rs. 810 respectively, thus advising buying the stocks on further dips.

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