IT Q3 Results Preview: Tata Consultancy Services (TCS) -- India's largest IT company -- is all set to kick off the corporate earnings next week by reporting its financial results for the October-December quarter on January 9. Other IT majors Wipro, Infosys and HCL Tech will also report their quarterly numbers during the course of the week. Here's what analysts expect from the IT sector in the forthcoming earnings season.

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“The revenue growth momentum of IT companies is likely to moderate in the third quarter of the financial year 2022-23 (Q3FY23) due to furloughs, a lower number of working days, deferred spending by few clients and increased cautiousness among clients on the back of macro uncertainties,” said Dipesh Mehta, Senior Research Analyst at Emkay Global Financial Services.

Mehta expects sequential revenue growth to stand in the range of 0.8-3.7 per cent in constant currency terms (CC) for Tier-I companies. For midcap IT firms, he has pegged growth at -0.4-3.4 per cent.

Also Read: TCS Q3FY23 results on January 9, Infosys, Wipro on January 12 - List

Analysts at Motilal Oswal Financial Services estimate median revenue growth of IT companies to stand at 1.9 per cent sequentially in constant currency terms.

According to the brokerage, 5.9 percent sequential growth in earnings before income tax (EBIT) and 7.2 percent in profit after tax (PAT) is likely to be partly aided by the three percent depreciation in the rupee. However, the positive impact may be muted due to softness in revenue growth, Motilal Oswal said in its research report.

"The weakening macros and recessionary fears have had a lesser adverse impact on the overall demand environment than it was anticipated at the beginning of the quarter... However, there are some pockets of weakness remaining in the consumer-facing verticals, where the decisions are delayed and the spending has been cut on the discretionary activities," it said.

Also Read: What lies ahead for Indian IT companies after Accenture's Q1 results

Except for LTIMindtree, the EBIT margin is expected to expand by 20-100 basis points (bps) sequentially for Tier-1 IT companies, and 20-50 bps for midcap companies on account of a flattening employee pyramid, optimisation in subcontracting costs, operating efficiencies, and rupee depreciation, Mehta said.

HCL Tech is expected to lead topline growth among Tier-1 IT companies

Motilal Oswal expects a broader range of revenue growth in the Tier I space, with HCL Tech leading the charge with revenue growth of five per cent in constant currency terms sequentially.

LTIMindtree, TCS and Infosys will follow with revenue growth readings of 2.7 per cent, 1.6 per cent and 1.5 per cent respectively.

Q3 margins to expand: Here's what Motilal Oswal expects from the IT space in this earnings season.

--Margins to see some improvement
--Though improved utilization, freshers becoming billable and favourable forex for some companies may provide some margin tailwinds
--This will be partly offset by adverse impact from furloughs and a higher proportion of cost take-out deals

Strong sequential growth seen in PAT

Motilal Oswal expects Tier I IT companies to clock profit growth of seven per cent on a quarter-on-quarter basis and 10 per cent on a year-on-year basis.

The brokerage expects HCL Tech to report sequential PAT growth of 13.2 per cent driven by strong overall growth and better margins.

Infosys, TCS and Wipro will follow with growth of 7.4 percent, 7.2 percent and five per cent respectively.