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Tier-II IT firms to outperform the BSE IT
By siliconindia
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Tuesday, 12 August 2008, 16:51 IST
Mumbai: The first quarter of FY09, has brought unexpected results in the IT sector, with the tier - II industries scoring over the BSE IT and the top IT firms. As per report from India Infoline, top tier-II firms like the IT consulting firm Satyam, the BPO firm HCL and the telecommunication firm Tech Mahindra have a higher earning growth prospect than the top three IT companies like Infosys, Tata Consultancy Services (TCS) and Wipro.
A prediction is set by the financial service provider, that with a discount of around 34 to 35 percent, driven by the FY10 P/E and P/B these tier-II sector will enjoy an edge over the others as they will be better placed in the Indian scenario compared to their tier-I rivals. According to the report, "On aggregate basis, the former clocked a quarter-on-quarter (QOQ) growth of 9.7 percent in revenues and 18.4 percent in operating profit which were far higher (even after considering salary hikes for Tech M, Infosys and TCS) than the top three Tier I companies."
Larger deals over the last 12-15 months remain the captivating cause for the better revenue visibility of Tech Mahindra, HCL and Satyam. Moreover, there is an increased valuation discount of the Tier-II large firms Satyam, which has expanded from average 15 percent in April 2008 to 26.8 percent at present. This is despite the lower compound quarterly growth rate needed by Satyam at both revenue and earnings level to meet its FY09 guidance as compared to Infosys. Further, the current discount is also higher than average 20.5 percent over the last one year.
