IT companies may see 1-8% revenue growth

Deal conversion into growth is an issue; margins may expand on easing supply-side issues
IT companies may see 1-8% revenue growth

BENGALURU: IT services companies will report their Q4FY24 earnings starting with Tata Consultancy Services (TCS) on April 12. Experts expect muted constant currency (CC) revenue growth for Tier-1 companies and TCS is expected to lead the IT pack with 1.7% sequential CC growth, mainly led by traction from the BSNL deal.

According to ICICI Securities, with continued scrutiny over discretionary spends and focus on cost optimisation, signs of improvement in IT spending in the near term remain elusive.

It says Tech Mahindra is likely to perform the worst with 1.4% QoQ contraction due to no positive traction in the communication vertical. Infosys might report a dip of 1.2% QoQ given the higher component of discretionary spending. Also, LTIMindtree is likely to post 0.3% QoQ contraction on account of pricing pressure and Q3 furloughs extending into Q4 for its clients. Analysts point out that deal conversion into revenue growth has been an issue. Sharekhan says deal win TCV (total contract value) for most players would recover after the moderation witnessed in the seasonally weak third quarter.

TCS order book for the third quarter stood at $8.1 billion. Analysts say deal wins, deal pipeline, outlook on growth and investments in Gen AI will be key things for IT companies. Axis Securities expects the IT sector to deliver sequential revenue growth of 1%-8% and says margins may expand on account of easing supply-side constraints and lower onsite expenses.

While Infosys is expected to report slight revenue growth of 0.3% QoQ. Axis Securities expects the management to provide 4.5% to 6% the company’s revenue growth guidance for FY25E. It expects Wipro to report revenue de-growth of 0.1% QoQ in rupee terms and its operating margins are likely to expand on account of lower onsite expenses. During Q3 earnings, Wipro said, for Q4, it expects revenue from its IT services business segment in the range of -1.5% to +0.5% in constant currency terms.

Brokerages point out that clients are still in a wait-and-watch mode with continued scrutiny on discretionary spends. Sharekhan expects EBIT margin during the quarter is likely to be mixed for Tier-1 IT service companies while Tier2 IT companies are expected to show marginal to decent improvement aided by operating leverage and owing to reversal of furlough impact of Q3FY24.

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