The earnings season for the second quarter (July-September) is all set to kick off today with Tata Consultancy Services declaring its results. The Indian IT sector is expected to post the strongest growth in the last five quarters supported by cross-currency gains, and TCS is expected to lead revenue growth at 3.5% to 3.6% QoQ, HDFC Securities said in its Q2 results preview.
Large Cap IT companies are expected to grow 2.9% QoQ in the second quarter of FY18 as compared to 2.6% in Q1 of FY18 and 1.4% in the Q2 of FY17. The growth in the second quarter is likely to be between 30 bps and 120 bps, supported by strong seasonality and cross-currency tailwinds.
Here are five things to expect from the Q2 results season:
- TCS, which posted disappointing financial Q1 results with its fiscal first-quarter revenue falling by 0.2% from the previous three quarters, is expected to lead the revenue growth in the IT industry. According to HDFC Securities TCS is expected to lead revenue growth at 3.5% to 3.6% QoQ, while Kotak Securities estimate revenue growth of TCS at 2.1%.
- Within large cap IT companies, Infosys is also expected to lead the revenue growth at over 3.6% QoQ and within midcap, IT companies are expected to grow at 2.7% QoQ and 8.2% YoY in the second quarter of the current fiscal.
- HDFC Securities says that mid-cap IT is expected to offer a larger array of opportunities as compared to large cap IT companies.
- The growth outlook of key verticals such as BFSI, retail and CPG, growth trends in digital, ER&D, IMS, large accounts’ mining, revenue productivity trends and penetration of digital services will be critical.
- Kotak Securities estimates EBIT margin to recover 125 bps QoQ on normalization of the wage hike, cross-currency tailwinds and operational efficiency. It notes that several cost items such as facilities cost and travel overshot in the previous quarter and expect normalization of these costs. ICICI Securities estimates EBIT margins to expand 130 bps.
(First published on Wednesday, October 11, 2017, on www.financialexpress.com)