Top line pressure continues for IT cos in Q4
Mid-caps expected to post a sequential revenue growth of 1-5%, large-caps likely to post -2% to +2%rise or decline in their top lines; TCS will kick-start Q4 earnings season on April 12
The outperformance of mid-tier IT firms over large IT companies will continue, though the gap is slowly shrinking
Bengaluru: Indian IT firms are likely to see continuation of weak revenue growth with steady operating margin profile in the fourth quarter of FY24 results of which will be announced from next week.
According to experts and brokerage firms, companies like TCS, and HCL Tech are likely to post better performance than their peers including Infosys and Wipro. While mid-caps are expected to post a sequential revenue growth of 1-5 per cent, large-caps are likely to post -2 to +2 per cent rise or decline in their top lines.
Infosys, Wipro, and LTI Mindtree will not see any improvement in their top line growth numbers and are likely to see a sequential revenue decline.
“TCS and HCL Techwill outperform on growth at 0.2-1.7 per centconstant currency Q-o-Q. USD revenue growth will benefit from modest cross-currency tailwinds of 2-10 basis points across larger peers and 5-43 basis points at mid-tier companies,” Kotak Institutional Equities said in a report.
The brokerage firm pointed out that Infosys would continue to report weak quarterly numbers with 1.5 per cent sequential revenue decline in Q4. Similarly, Wipro, LTI Mindtree and Tech Mahindra are also expected to report a sequential revenue decline in the March quarter, Kotak Institutional Equities added.
The outperformance of mid-tier IT firms over large IT companies will continue, though the gap is slowly shrinking.
According to Emkay Global Financial Services, the mid-cap IT companies are expected to report sequential growth of 1-5 per cent compared to -2% to +2% (USD growth) for large-caps.
Though top line will seetepid growth during the January-March quarter, operating margins of most firms are expected to remain steady.
Falling attrition, low level of hiring, and weakening rupee against dollar will supplement margin growth during the fourth quarter.
“We expect reasonable margin improvement at TCS, while the reversal of one-off impact from unprofitable contracts should benefit Tech Mahindra. Wipro is likely to report a moderate decline in margins, while HCL Tech’s EBIT margin should be impacted by seasonal weakness in the products business,” Kotak Institutional Equities said in the report.
For FY25, revenue and margin guidance are likely to be muted, taking cues from the revenue forecasts of global IT firms. However, analysts said it would be marginally better than last fiscal year.
“The financial year 2024-2025 is estimated to be moderately better for the Indian IT sector. The revenue growth outlook for FY25 across IT companies is likely to be marginally better with TCS expected to lead larger peers in growth,” Kotak Equities said.
Earlier, Accenture has reduced its revenue growth forecasts for 2024 to 1-3 per cent fromearlier projections of 2-5 per cent.
Tata Consultancy Services (TCS) will kick-start the earnings season for the fourth quarter on April 12, while Infosys will declare its Q4 earnings on April 18. HCL Tech is scheduled to release its results on April 26.
