TCS To Infosys: Flat Revenue Growth Expected In March Quarter
The street expects Q4 earnings for Indian companies to also remain weak, with a pick-up coming in from the second half of FY25.
The top six Nifty IT companies may report a flat fourth quarter earnings, on account of the pressure on discretionary client spends and global peers lowering their near-term guidance. While the Nifty IT has been up 22% in the last 12 months, the index does not reflect the performance of most of the top-tier IT companies over the same period.
Q4 Forecast
Tata Consultancy Services: Bloomberg consensus estimates project Tata Consultancy Services Ltd. to lead Q4 earnings, with an anticipated 1.4% quarter-on-quarter revenue growth. The growth is fuelled by the ramp-up of the BSNL contract and the recent deal win with Aviva. Margin is expected to rise moderately by 34 bps sequentially.
Infosys: Bloomberg estimates expect Infosys Ltd. to deliver a flat revenue growth and see a modest improvement in margin by 22 bps.
HCLTechnologies: Revenue growth is expected to be stable on the back of one month of Verizon deal ramp-up. According to Bloomberg estimates, HCLTech is forecasted to report the lowest EBIT margin growth, on the back of seasonality in the products and platforms business.
Wipro: Wipro recently appointed Srinivas Pallia as the new CEO in place of Thierry Delaporte. According to Bloomberg, the street expects Wipro's Q4 revenue to be flat sequentially, with a 96-basis-point margin contraction.
Tech Mahindra: The street is awaiting the turnaround strategy by Tech Mahindra Ltd.'s Mohit Joshi, who was appointed as the new CEO in June 2023. Bloomberg consensus estimates have built-in a flat revenue growth for Q4, while it factored in the highest EBIT margin improvement among the top IT peers.
Global Market Trends
Accenture, in its latest Q2FY24 results, slashed its FY24 guidance to 1%-3%, from 2%-5% previously. The managed services segment of Accenture, which is often considered as the leading indicator for IT companies, experienced a growth of 3% during the quarter.
This suggests that the demand for managed services, which typically include outsourced IT operations, infrastructure management and support services, still remains soft.
Hence, the street expects Q4 earnings for Indian companies to remain weak, with a pick-up coming in from the second half of FY25.
What Do Brokerages Have To Say?
“New bookings differed from expectations as clients continued to prioritize investing in large-scale transformations, which convert to revenue more slowly while further limiting discretionary spending, particularly in smaller projects,” said Surendra Goyal from Citi Group in a research report.
The brokerage expects the top 5 companies to post a revenue growth of -1.4% to +1.2% sequentially in Q4 FY24. The forecast comes despite a reversal of furloughs quarter-on-quarter. Citi also noted that the focus is likely to be on Infosys and HCLTechnologies' FY25 revenue guidance as well as the qualitive commentary from TCS, since the pace of recovery needs to be monitored.
According to CLSA, Indian IT companies are likely to guide conservatively for FY25 and Q1 FY25, given that the brokerage expects no companies, except for Aviva by TCS, to announce large deal announcements in Q4.
The conservative guidance expectations comes after overall weak demand commentary by Indian IT/global peers, including Accenture, Cognizant, Capgemini, EPAM and Globant, as well as an unchanged outlook for key verticals like banking, retail, hi-tech and telecom, said CLSA.
On similar lines, HDFC Securities expects Infosys to guide for 3-5% growth in FY25 and HCLTech to guide for 5-7% growth. For Wipro, the brokerage expects a guidance between -1% to +1% on a sequential basis for Q1 FY25 and L&T Technology Services Ltd. to guide for more than 10% growth for the next financial year.