Q1 results preview: Improvement likely in IT cos’ revenue

Also, deal wins are likely to be moderate for IT companies after a high base in the previous quarter.
HCL tech (L), TCS (R)
HCL tech (L), TCS (R)

BENGALURU: After a muted Q4FY24, IT services companies are expected to report a slight improvement in revenues in the first quarter of this fiscal. Also, deal wins are likely to be moderate for IT companies after a high base in the previous quarter.

Analysts expect revenue of IT services companies to recover in Q1. Sharekhan expects Infosys to lead among Tier-1 firms, with 2.3% QoQ CC revenue growth followed by TCS with 1.5% QoQ CC growth. TCS will report its Q1FY25 earnings on Thursday and HCLTech on Friday. Infosys, Wipro and LTIMindtree will report their Q1FY25 results next week. In Q4, TCS’ revenue from operations stood at Rs 61,237 crore. Infosys’ revenues for Q4FY24 stood at Rs 37,923 crore, growth of 1.3% YoY.

HDFC Securities said the growth/earnings cut cycle has bottomed out, but the pace of recovery remains uncertain, especially with lingering macro events over the next couple of quarters. “For Q1FY25E, revenue growth divergence continues and is expected to range from -2.2% to +1.5% QoQ (-4.6% to +4.8% in YoY terms) for tier-1 IT. Q1 growth expectations for mid-tier IT ranges from -1.6% QoQ to +4.9% QoQ, it said.

It expects IT sector growth at 4% in FY25E following 2.6% rise in FY24. As per brokerage Nomura, FY25F revenue growth will be led by large cost take-out projects, which will have initial transition costs. In addition, with peaking utilisation in H1FY25F, it expects hiring to pick up pace in the second half of the fiscal.

Nomura expects the strongest revenue growth at +2.5% QoQ (in constant currency or cc terms) from Infosys and the weakest at -2% QoQ in cc from HCLTech. Barring TCS (impacted by salary hikes) and HCLTech (impacted by seasonal factors), it expects margins to remain stable.

Motilal Oswal said it would be looking for signs of recovery in discretionary spending in the form of deal activities, which have been skewed towards cost-takeout projects.

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