IT, Telecom Q4 Preview - Macroeconomic Conditions More Challenging; Slowing Down The Demand: Axis Securities

Axis Securities Report

IT services sector is expected to report moderated growth in Q4 FY23 primarily on account of challenging times from world’s largest economies. IT automations in North America and Europe may show delayed spend or may face some spend cuts going ahead.

We believe many of large enterprises will shift their focus on cost optimisations resulting in higher cost take out deals, vendor consolidation and lower discretionary spend. Banking, financial services and insurance, manufacturing, telecom, retail and hi tech verticals are expected to be the impacted by the slowdown, thus weakening FY24E growth momentum outlook.

We expect IT services to report revenue growth in the range of 0.8%- 1.5% QoQ in U.S. dollar terms. In rupee terms, we expect the sector to deliver QoQ revenue growth of 1% to 8%.

However margins are likely to expand marginally by 50-100 basis points aided by easing of supply-side constraints, lower attrition rate, lower onsite cost and moderated sub-con cost.

In telecom sector, we expect Bharti Airtel Ltd. to post a healthy recovery in terms of curtailing losses and reporting a profit. Revenues are likely to grow by 6.5% QoQ, led by higher wireless revenues in India as well as in Africa. Operating margins are likely to witness marginal expansion due to lower commission costs and sales and marketing expenses.

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