Q2 preview: ‘IT cos’ margins may expand by 50 bps’

IT companies are all set to announce their second quarter (July-September) results from October 10, starting with the country’s largest IT firm Tata Consultancy Services (TCS).
Image used for representational purpose only.
Image used for representational purpose only.

BENGALURU: IT companies are all set to announce their second quarter (July-September) results from October 10, starting with the country’s largest IT firm Tata Consultancy Services (TCS). Wipro will announce the results on October 12, followed by Infosys and Mindtree on October 13. Brokerages predict the revenue growth to continue in the second quarter too.

However, margin expansion is likely to be restricted due to continued high attrition, says ICICI Direct. It says revenue performance will be strong in the second quarter, barring weakness in a few companies due to company specific events - seasonal weakness in P&P business for HCLTech, which will likely overshadow stable performance in other verticals.

Tech Mahindra business is expected to be impacted by planned exit from some of the low margin portfolios, which may impact revenues by nearly 1% for the quarter. ICICI Direct says margins are expected to expand quarter-on-quarter but margin expansion would be restricted to 20-50 bps for majority of the firms due to continued supply side challenges that will keep attrition at the elevated levels and subsequently increase backfilling costs.

Jefferies expects Infosys to deliver the highest organic growth (+4% QoQcc) and estimates Wipro’s growth to be similar to Infosys’s, aided by 100 bps inorganic contribution from Rizing/Convergence. Analysts also believe Infosys might announce a share buyback in the second quarter. “TechM’s revenue growth is likely to be soft (+2.4% QoQcc) due to rationalisation of a few low-margin engagements.

Among midsize IT firms, we expect healthy growth for Coforge (+5.5% QoQcc) and Mindtree (+5.2% QoQcc),” it said in a note. It expects aggregate Ebit margins to recover slightly by 30bps QoQ in the second quarter after falling by 165bps in the first quarter.

Revenue growth to continue in 2nd quarter
Starting with the country’s largest IT firm Tata Consultancy Services (TCS). Wipro will announce the results on October 12, followed by Infosys and Mindtree on October 13. Brokerages predict the revenue growth to continue in the second quarter too

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