Revenues grew 5% Q/Q in USD terms (6% in CC) driven by an impressive 7.6% Q/Q volume growth (the highest in 11 quarters) but pricing fell surprisingly (offshore price down 3% Q/Q CC). Margins fell sharply by 210 bps, a combination of wage hikes, high attrition and price declines. Overall, EPS at Rs 26.05/share fell 8% Q/Q below expectations.
Price decline is clearly a worry and we will speak to management to see the reasons for same, 2) Reported attrition jumped up to 16% (13% in 4QFY10) with quarterly run-rate of 25%, 3) Utilisation has moved up to 73% already (69% in 4QFY10) meaning that room for further utilization increase is limited, 4) Europe was weak in the quarter (down 1% CC) and we expect the weakness to continue. While Americas grew 7% CC, we believe that growth momentum needs to be sustained to offset Europe weakness. 5) Net headcount addition of just 1026 people due to high attrition
Volume growth led to a 3% increase in Revenue guidance to 19-21% growth for FY11 (16-18% earlier). However EPS guidance was revised up by 1% due to higher margin pressures in our view. Rupee EPS guidance was increased to Rs 112-117/share largely due to Rupee/US$ depreciation. With consensus estimates already at Rs 122-125/share, we see no room for EPS upgrades post this quarter. We continue to believe that consensus estimates are already too high and there is no upside to consensus estimates.
