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IT cos set to raise revenue guidance

Indian software firms shrug off Omicron impact, high attrition rate; Expect biz sustainability in Q4 as they optimistic on drop in attrition and supply-side pressure over next 3 qtrs; However, margin pressure is likely to continue

IT cos set to raise revenue guidance
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Bengaluru: Indian IT services companies are likely to post strong third quarter results next week with some marquee firms raising their revenue guidance for this financial year. Brokerage firms and experts are of the opinion that IT biggies remain at a steady path to achieve a double-digit growth in FY22.

According to brokerage firm Emkay, Infosys is likely to revise its FY22 revenue growth guidance to 17.5-18 per cent year-on-year, while IDBI Capital expects Infosys to up the guidance to 18-19 per cent in FY22. Infosys started this fiscal year with a revenue growth guidance of 12-14 per cent.

Similarly, HCL Technologies is likely to deliver revenue growth of around 12 per cent in constant currency for FY22, brokerage firms said. Another IT major Wipro is expected to give a growth guidance of 2-4 per cent in constant currency term for the fourth quarter.

Among the mid-tier IT services companies, L&T Technology Services is expected to raise its guidance to 20-21 per cent for FY22 from the current level of 19-20 per cent. "Earlier, the optimism around revenue growth was there on the back of sound deal pipeline. But, there were a lot of uncertainties on the project ramp up owing to the pandemic and supply side issues like high attrition. As we enter the Q4, companies are more confident of calling out the higher growth numbers because of more certain demand environment," said Pareekh Jain, an IT outsourcing advisor & founder,Pareekh Consulting.

The quarterly results will also indicate easing in the supply side pressure with fall in attrition. "Attrition and supply-side pressure would start to ease off from this quarter and would continue to decline for the next two-three quarters," Edelweiss Securities said in a pre-earnings note.

The Naukri JobSpeak index, one of the benchmarks that gauges the hiring activity for different sectors, reported drop in hiring activity for October and November 2021, in the Indian IT sector. This is an early indication of easing in supply side constraints. For the quarter ended September, many IT firms have witnessed more than 20 per cent attrition rate.

Infosys saw its attrition rising by 620 basis points over the first quarter to 20.1 per cent. Similarly, Wipro's attrition rate reached 20.5 per cent in Q2 of FY22, up from 15.5 per cent in Q1. For HCL Technologies, attrition rate touched an all-time high rate of 15.7 per cent, up from 11.8 per cent reported in the first quarter. However, margin pressure is likely to continue with most IT firms expected to report a drop in operating margin in the third quarter.

Debasis Mohapatra
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