Tech Mahindra, among the top five IT services providers, is expected to lead revenue growth sequentially led by a string of acquisitions. Infosys and Wipro are expected to lead on the organic growth front, they said.
The financial results season will kick start next week with Tata Consultancy Services (TCS) on Monday (April 11), followed by Infosys (April 13), and HCL Technologies and Wipro later in the month.
TCS, India’s largest IT service provider by revenue, is expected to report 2.8-3.3% revenue growth on a sequential basis and 15% year on year, backed by stable demand.
Infosys is expected to report around 3% sequential revenue growth due to a higher base from the third quarter, while year on year revenue growth is expected to be in the range of 25-26.5%.
Wipro’s revenue is expected to grow at 3-3.4% quarter on quarter — within its guided range for the quarter – led by banking and financial services, and healthcare as top-performing verticals.
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HCL Technologies is estimated to clock 0.5-2% growth in sequential revenue due to a double-digit fall in its products and platforms business on account of seasonal factors.
Wipro’s revenue growth on a yearly basis is estimated at around 27.5%, while HCL Tech is expected to grow at 14-16.3% on-year.
“We expect Tier I IT organic revenue growth to be in a narrow band, with Wipro leading with a revenue growth of 3.5% QoQ in constant currency, followed by TCS and Infosys at 3.3% and 3.1%, respectively,” brokerage Motilal Oswal said in a research report.
Tier I companies are expected to deliver a profit after tax growth of 3% QoQ and 15% YoY, it said.
The strong revenue performance is expected to be driven by continued demand, led by increased deals on a full-scale digital transformation, better pricing power, and higher spends on cloud migration by large corporations, analysts said. A couple of client ramp-downs are expected to keep revenue growth slow for TCS.
Tier 2 service providers will continue to outgrow Tier 1 companies, but the pace will slow down in the fourth quarter, analysts said.
Among Tier 2 companies, Mindtree and Coforge are expected to lead revenue performance at around 5% growth sequentially.
Meanwhile, revenue growth is expected to moderate on a sequential basis during the quarter as a high base effect comes into play.
Tech Mahindra is likely to deliver the highest reported growth, up 5.1% QoQ in constant currency terms, fuelled by acquisitions, Motilal Oswal added.
Most brokerages have said that HCL Technologies would clock muted growth in constant currency on a quarterly basis due to the vertical seasonality of its platforms and products business. Most licensed products have a subscription period reflecting the calendar year.
Brokerages also expect Infosys to provide a revenue growth guidance of 12-14% for the ongoing financial year and Wipro to peg April-June growth at 2-4%.
Margins under pressure
Brokerages do not expect any impact on demand due to the Russia-Ukraine conflict and inflation. However, the talent crunch, wage hikes and visa costs are expected to weigh down on margins.
“We estimate aggregate margins to decline by 50 bps QoQ to 21.1%, due to supply side pressures and rise in discretionary costs,” brokerage firm Jefferies said in a report.
It also said margin guidance for Infosys could be downgraded to 21-23% for the current financial year, from 22-24% for the year ended March 2021, given rising inflationary pressures in the US.
Brokerage firm Prabhudas Lilladher expects HCL Tech to give a margin forecast of 18-20% for FY23 since the metric is set to close the year near the lower end of their guidance band of 19-22% in the March quarter.
“We expect attrition to be stabilized in the near-term given strong fresher hiring over the last few quarters. Lateral hires to backfill attrition is expected to impact on margins in Q4,” said Ashis Dash, IT analyst, Sharekhan by BNP Paribas.
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