IT Q2 FY25 Results Preview: TCS likely to clinch 1% CC revenue growth QoQ, Infosys may tweak guidance

Even as the IT industry faces no significant headwinds, the industry as a whole is on the recovery path which is gradual and continuous. The industry having bottomed out two quarters ago is said to be in the middle of the recovery phase. The domestic brokerage HDFC Securities expects the IT services industry to log high single-digit growth over the next three quarters.

The prime tailwind serving the industry right now is the appreciation of major currencies including GBP and Euro. Here is a  breakdown of how the IT sector may fare in Q2FY25:

Revenue growth

Prabhudas Lilladher expects its IT coverage to post a median revenue growth of 1.6 per cent QoQ CC in Q2 vs 1.5 per cent in Q1. Likewise, operating margins are expected to witness a notable recovery of
40bps (median).

HDFC Securities believes revenue growth divergence continues and is expected to range from -0.2 per cent to +3 per cent QoQ CC (- 3.0% to +5.2% in YoY CC terms) for tier-1 IT. LTIM and Infosys are expected to lead growth within tier-1 IT, followed by TCS, Tech Mahindra, HCLT and Wipro. TCS’ revenue growth is expected to moderate in Q2, impacted by muted performance ex-India with incremental weakness in Retail & CPG (for instance CVS Health) and growth moderation in UK geography (despite recent wins such as Primark, Rolls Royce and Mansfield Building), added the brokerage report.

Sharekhan, meanwhile, expects expects q-o-q constant currency (CC) revenue growth of 0.1-3.2 per cent for Tier-1 and 1.4- 3.9 per cent q-o-q revenue growth in CC terms for Tier-2 IT companies. 

Guidance 

Sharekhan believes that most companies from the sector will stick to their revenue and margin guidance except for Infosys which may be expected to up the guidance on the back of a better H1FY25.

EBIT margin recovery for Tier-1:

Sharekhan expects most Tier-1 IT service companies within its coverage to likely to report an improving EBIT margin trend aided by cost control, operational efficiencies and absence of visa costs.

TCS, Infosys, HCLTech, Tech Mahindra and LTIM are expected to see margin expansion of ~20-80 bps, it added. Among Tier-2 companies, EBIT margin for Coforge and NIITMTS are expected to see ~110 /50 bps q-o-q decline largely due to wage hikes.

LTTS is expected to see EBIT margins rise by ~60 bps aided by revenue growth and operational efficiencies. EBIT margins for Birlasoft, noted the brokerage.

Deal wins

 Deal win activity to be moderate across companies considering the absence of mega-deal wins during the quarter. Deal wins are expected to be more of a cost take-out nature, said Sharekhan in its preview copy.