Fw: Investor's Eye: Viewpoint - Diamond Power Infra (A complete T&D EPC player); Special - Q3FY11 IT earnings preview

Investor's Eye [January 04, 2011]  Sharekhan www.sharekhan.com Summary of Contents VIEWPOINT Diamond Power Infrastructure A complete T&D EPC player in the making We recently met with the management of Diamond Power Infrastructure Ltd (DPIL). The company is an integrated turnkey player with a strong presence in cables and transformers. It manufactures a complete range of products to cater to the power transmission & distribution (T&D) sector. After its recent expansion drive, the company has an in-house control over 80% of the average cost of an engineering, procurement and construction (EPC) T&D project.  SHAREKHAN SPECIAL Q3FY2011 IT earnings preview Revenue growth could surprise in a traditionally weak quarter: The December quarter has traditionally been weak for information technology (IT) companies owing to a lower number of working days as compared to the number of days in the other quarters. However, this year we expect the IT companies to spring some positive surprises on the revenue front led by the continuity of demand traction from the previous quarters and a demand uptick in the lagging sectors. We expect the revenues of the top four IT companies to show an average growth of 7% quarter on quarter (QoQ) in this December quarter. In terms of the demand outlook for FY2012, the market will keenly monitor the management commentary on client budget for CY2011 (which is expected to be higher by 2-2.5% as per recent consensus management expectations), the broad-based recovery and the sustainability of the demand in verticals other than the banking, financial services and insurance (BFSI) vertical.  Margin performance could be better than the Street?s expectations: The key differentiator for the top-tier IT companies? valuations in a strong demand scenario would be their margin performance and their outlook on the same. We expect the margin performance to be better than the Street?s expectations, with some significant outperformance from Tata Consultancy Services (TCS) and HCL Technologies (HCL Tech); both the companies? managements had earlier hinted at pressure on the margins for the December quarter.  Valuation: Eye will be on margin hiring, demand environment already in comfort zone: In the last few quarters we have already witnessed some significant revenue upgrades for the IT sector. We expect the demand to get more broadbased and the uptick in the pricing to further propel revenue upgrades for FY2012. However, we still have concerns on the margin lever execution for FY2012 on account of a higher people related cost and fatigue in the existing margin levers like utilisation. Nevertheless, we expect the consensus earnings upgrades to continue in the coming quarters with the sustained buoyancy in the demand. In recent months the entire IT sector has ridden the growth momentum and continued to outperform the broader market indices. The current valuations of the tier-I IT companies appear a bit stretched and we expect consensus earnings upgrades for FY2012 which will provide some cushion to the current risk-reward parity. We remain positive on the IT sector and our top IT picks remain HCL Tech and Polaris Software Lab (Polaris).   Click here to read report: Investor's Eye   Regards, The Sharekhan Research Team myaccount@sharekhan.com  Manage your newsletter subscriptions