TCS and HCL likely to lead the pack once figures for the April-June quarter are revealed later this month
As client budget for IT spend starts rolling out during the first quarter of the current fiscal, the $86 billion Indian software exports industry is expected to end the April-June stretch on a positive note. The country’s top-tier IT-services companies are projected to record a strong top-line growth; however, margins are likely to decline sequentially due to annual wage hikes and visa expenses during the June quarter.
Analysts tracking the sector expect large-cap IT players to post sequential dollar revenue growth in the range of 1.5-5 percent, with TCS and HCL Technologies leading the pack.
According to estimates by multiple brokerage houses, TCS is projected to report sequential dollar revenue growth in the range of 4.5-5 percent, followed by HCL Tech at 4 percent. Infosys is expected to record a growth of 1.8-2 percent while Wipro is projected to post in the range of 1-1.5 percent. The IT earnings season kicks off on July 11 with Bangalore-based Infosys announcing its quarterly results.
During the January-March period, Noida-headquartered HCL Technologies posted the highest revenue growth at 3 percent among the top four Indian IT firms followed by Wipro at 2.5 percent. TCS recorded a top-line growth of 1.9 percent for the March quarter while Infosys had a 0.4 percent sequential decline in dollar revenue impacted by sluggish business in some of its key verticals.
Analysts point out that during the April-June stretch, a seasonally strong quarter for the industry, the overall demand environment has remained stable. Even IT spending has “recovered” in verticals, including retail and manufacturing, which were a “drag” in the previous quarter.
According to brokerages, operating margins of the top four IT firms are expected to go down in the range of 100-225 basis points (bps) sequentially hit by about 3 percent appreciation of the rupee against the US dollar during the quarter. Wage increments and higher visa costs, which are typically incurred in April when visa applications are filed, will also be a deterrent.
“Profitability of Infosys, TCS and Wipro is expected to decline by 11 percent, 7.7 percent and 7.5 percent quarter-on-quarter while HCL tech is expected to have almost flat sequential net income as the company has not given any wage hikes which is a major headwinds for operating margins for its peer companies,” said Ankita Somani, IT analyst, MSFL Research.