Tata Consultancy Services (TCS), India’s largest IT services company, will announce its Q1 FY2024-25 earnings on July 11, followed by HCL Technologies (July 12), Infosys (July 18) and Wipro (July 19). According to analysts, IT sector earnings in Q1 2024-25 is expected to be a mixed bag, including modest revenue growth and a strengthening trend in operating margins.
Brokerage firm Motilal Oswal in its note said, “The brutal winter of discretionary spend cuts in the industry is likely over, but there is little evidence of a recovery in the flow business. Hence, we are on track for one of the weakest first quarters for at least 10 years. The situation, though slightly better, is eerily similar to what we witnessed in 1HFY24. We would be looking for signs of recovery in discretionary spending in the form of deal activities, which have been heavily skewed towards cost-takeout projects.”
The brokerage added that revenue growth of Tier-I IT companies in Q1FY25 is estimated to be in the range of -0.5% to +2.0% QoQ in CC. Revenue of Tier-II IT players is expected to grow by -1.5% to +5.0% QoQ in CC terms.
In a note, Japenese brokerage firm Nomura expresses optimism for the Indian IT sector, noting a stabilisation in revenue growth rates and anticipating an end to the earnings per share (EPS) downgrade cycle.
Another brokerage InCred Equities in its note said, “The June 2024 trends are positive vs. May/Apr 2024 and/or at the beginning of 1QFY24. Client procrastination across industry segments is receding and is being replaced with 1) a sense of urgency, and 2) a change in the speed of decision-making.”
As a reminder, Accenture (ACN US: Not Rated) in its 3QFY24 commentary highlighted a return in consulting work, which was weak since 2QFY23 (Aug year-end). Put together, we believe 1QFY25F earnings commentary could be generally constructive, it added.
TCS Q1 Earnings
According to analysts at Motilal Oswal, TCS is likely to have grown 1.6 per cent QoQ CC, led by deal scale up, including the BSNL deal, which is ramping up as per plan. Its EBIT margin may contract 150 bps QoQ owing to wage hikes in Q1FY25.
It added that the deal pipeline should remain healthy. Outlook on near-term demand & pricing environment, BFSI, and deal wins are key monitorables.
Infosys Q1 Earnings
According to Motilal Oswal, Infosys is expected to see a rebound in revenue growth to 2.0 per cent QoQ CC, on account of ramp-up of large deals won in FY24. Motilal Oswal expects the deal TCV to be robust in Q1; however, deals should be skewed towards the cost-takeout initiatives.
The operating margin for Infosys in Q1 is expected to increase by 30 basis points, supported by growth momentum and the absence of wage hikes. Infosys’ operating margin is likely to reach 20.4%. The company is also likely to maintain its growth guidance of 1-3% in constant currency for FY25, according to Motilal Oswal.
HCL Tech Q1 Earnings
HCL Technologies to announce a 2 per cent sequential decline in revenue for the quarter, influenced by customary annual productivity adjustments to clients and planned reductions in its IT services segment. Margin contraction of 80 basis points is expected quarter-on-quarter due to seasonal challenges. The company is expected to maintain its FY25 revenue growth forecast of 3-5 per cent.
Wipro Q1 Earnings
Wipro is likely to report a 0.5 per cent decline in Q1, amid macro impact and continued softness in verticals. The IT services margin may be range-bound and could witness a marginal dip.
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