1. Infosys, HCL Tech, TCS, Wipro to feel cross currency headwind

Infosys, HCL Tech, TCS, Wipro to feel cross currency headwind

Seasonal strength will be missing this September quarter results in view of broad based weakness in financial services and project delay/ cancellations across many clients.We expect 0.5-3% q-o-q c/c revenue growth for tier-I IT.

By: | Published: October 4, 2016 6:17 AM

Seasonal strength will be missing this September quarter results in view of broad based weakness in financial services and project delay/ cancellations across many clients.We expect 0.5-3% q-o-q c/c revenue growth for tier-I IT.

We forecast cross currency headwind of 50-100 bps for tier-1 IT due to depreciation of GBP partly offset by appreciation of JPY, AUD and EUR against USD.

Infosys would lead the pack with c/c growth of 3% followed by HCLT (2.6%) and TCS (2.4%) and Wipro (0.5%). Growth will be impacted by broad based weakness in BFSI, weak healthcare and delays in projects.

Slowdown in growth rate and strong rupee will lead to toning down of margin expectations by companies. Infosys will likely guide for margins at the lower-end of the band of 24-26% and TCS will guide for FY2017 EBIT margin below the 26-28% range.

We expect 40-50 bps improvement in margins of Infosys and TCS. HCLT and Wipro’s margins will decline 100-120 bps largely due partial impact of wage hike over and above cross currency headwinds.

Tech Mahindra’s margins will decline marginally due to one-off restructuring costs associated with largely onsite-centric employee separations.

If the company continues with its historical approach, then the guidance will be cut to 9-10% range from 10.5-12%. However the cut could be higher if the company wants to build in additional cushion in numbers.

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