BENGALURU: IT companies will deliver muted revenue growth in the third quarter of this fiscal. Starting from January 9 with Tata Consultancy Services (TCS), IT companies will release their December quarter results.
According to analysts, as the third quarter is a seasonally weak quarter due to higher furloughs, IT firms might report subdued revenues. IDBI Capital expects Infosys (1% QoQ growth in CC terms) and Wipro (1.2% QoQ) to outperform large cap companies and HCL is expected to register 2.8% QoQ growth led by product revenues- up 18% QoQ.
In its earnings preview, IDBI Capital said Infosys will revise revenue guidance from 15-16% to 15.5%-16.5%. In the second quarter, the second largest IT services company Infosys revised its FY 23 revenue guidance to 15%-16% from 14%-16%, and trimmed its operating margin guidance to 21%-22% (from 21%-23%).
It forecasts EBIT margin of Wipro to grow by 68 bps QoQ led by lower attrition. In the Q2 earnings conference, Thierry Delaporte, CEO and MD, Wipro, said that they are seeing a change in the
level of optimism, as businesses around the world are dealing with inflationary pressures, geopolitical turmoil, energy crises and rising interest rates.
In the third quarter too, furloughs are likely to weigh on growth. “For Indian IT services companies, the pain is likely to be more pronounced in interest rate-sensitive sectors like mortgage, capital markets in the BFSI vertical, discretionary retail, and pockets of manufacturing verticals,” said Nomura. It expects USD revenue growth to slow down from 12.7% in FY23F to 8.0% in FY24F. Also, IT budgets are likely to be prioritised in areas of automation and cost efficiencies.
Kotak Institutional Equities believes that Infosys will retain 15-16% revenue growth guidance.
“Infosys and HCLT have guided for an EBIT margin band of 21-23% and 18-20%, respectively. We expect FY2023E EBIT margin at the lower end of the band,” it said.
Also, analysts indicate that there will be a decline in IT budgets for CY2023. Nomura’s recent survey among industry participants suggests increased caution on tech spending by enterprises in developed markets across most industries.