16 changes to key forecasts and assumptions

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Unformatted text preview: ely benign for Indian IT vendors .................... 16 Changes to key forecasts and assumptions ...................... 18 Tata Consultancy ............................................................... 20 Tech Mahindra Ltd ............................................................ 23 Wipro ................................................................................. 26 Infosys Limited .................................................................. 29 HCL Tech ........................................................................... 32 Page 2 Deutsche Bank AG/Hong Kong 7 January 2014 Software & Services Indian IT Services Sector geared to macroeconomic recovery Top pick – TCS Significant improvement in the macroeconomic outlook for major western economies (revenue contribution for the Indian IT service vendors: USA 55– 60% and Europe 25–30%) is likely to have a positive impact on global tech spending in general and IT services in particular. Moreover, pent-up demand for change-the-business spending with a special emphasis on SMAC will help incumbent offshore service providers drive revenue growth. In addition, a stable INR and abating concerns about the ‘draconian’ provisions of the US Immigration Bill lead us to believe that top-tier Indian vendors should be able to deliver 12–22% yoy earnings growth in FY15E. Thus, despite the CNX IT outperforming Sensex by 50% in CY13, we maintain our positive stance on the sector. While overall spending on IT services is likely to improve, our recent channel checks suggest that the market positioning of most of the top-tier Indian vendors is likely to remain largely unchanged in CY14E vs. CY13. Consequently, TCS continues to be our top pick as it would benefit from diversified geographical and vertical exposure and strategic vendor status with most of its top customers. We also like Tech Mahindra, which will likely continue to leverage its strong balance sheet and competitive pricing to win market share. Amon...
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