With Infosys Technologies kicking off the IT earnings season on Friday, the Street is foreseeing a rather lacklustre performance for the top-tier companies during the March quarter, owing to a seasonal revenue growth slowdown. This quarter, being a time of deliberation over next year?s IT budgets, US dollar revenues of TCS, Infosys, Wipro and HCL Technologies, are being projected to grow sequentially on an average of 4 to 5% by analysts; a step down from a 6.3% growth registered over the last four quarters. Year-on-year, experts foresee a revenue growth of 25-27% for the top four.
Cross currency movements, which have long been a bane for the export driven IT industry, have been favourable this quarter. This, in addition to a better-than-expected volume expansion, will be a saving grace for companies, say analysts. Average rupee depreciation is projected to have an impact of 1% q-o-q in revenues of the top firms, says a report from Kotak Securities. The same report projects volumes to rise by an average of 4-5%, considered encouraging in the seasonal context. TCS, according to Motilal Oswal, is expected to lead volume growth, while HCL is projected to lag behind due to high exposure to Japan and ongoing BPO restructuring.
Relatively better pricing and cost efficiencies will aid the sector to keep margins more or less flat. According to Sharekhan, TCS and Infosys are projected to lose a marginal 20 basis points (bps) and 40 bps in EBITDA margins respectively. Wipro?s EBITDA margin is likely to rise 40 bps, and HCL will be up 100 bps, notes ICICI Securites. Growth in profit after tax (PAT) is being pegged at anywhere between 3.7% to 6.7% by leading brokerage firms.
Amongst the top four, HCL, which has exceeded revenue percentage growth of its peers over the past 7 to 8 quarters, is being viewed as one to watch for, followed by big brother TCS. Sharekhan expects HCL to lead the pack in terms of sequential PAT growth at 12.9%. The modest Infosys, with its conservative guidance, may outperform its stated outlook. Wipro, which has found itself on shaky ground in the past few quarters, may require close to three quarters to catch up with its peers in terms of volume growth, note analysts.
?Infosys is likely to exceed annual guidance by 8 to 10%, but considering that it guides conservatively, the Street expectation was higher. TCS seems to be in a comfortable position, and we continue to be bullish on HCL, factoring in its performance for the past several quarters,? said Abhishek Shindadkar, an IT analyst from ICICI Securities.
?Wipro may be a relative under-performer, considering the recent organisational restructuring, high level of attrition, and its portfolio, which is not oriented towards high performing verticals of the moment,? he added. According to ICICI Securities, revenues of TCS are expected to be up 4.8% sequentially to R10,131.8 crore for the quarter, with PAT at R2,397.3 crore, up 2.9%. Revenue for Infosys, according to Kotak Securities, is likely to grow 4.7% q-o-q to R7,441.9 crore, with PAT at R1,893.5 crore, up 6.4%. The same report states that Wipro may grow 4% over the last quarter?s revenue, at R8,141.5 crore, while PAT is being pegged at R1,389.5 crore, increasing 4.8%. ICICI Securities, however, projected a 6.1% revenue growth for Wipro. HCL’s revenue is being forecast to grow at 5.2% to R4,114.4 crore by Sharekhan, with PAT at R451.1 crore. (For HCL, this is the third quarter of the fiscal, as it follows a July-July financial cycle.)
With markets already discounting high growth rates for FY12, most brokerages are citing the Infosys guidance for the next fiscal, considered a bellwether for the sector, as the key indicator to look out for. On an average, Infosys is expected to guide at 18 to 20%. Although TCS does not guide annually, analysts from ICICI Securities feel they would be comfortable with close to 20%. Wipro, is expected to project a sequential growth of 3.5% in dollar revenue by Motilal Oswal.
Pricing, wage inflation and hiring plans will be an indicator of spending trends in the sector, highlighting the trajectory of discretionary spend. ?Hiring plans will be interesting to watch out for, as greater lateral intake will indicate more visibility on the discretionary spend going up. Wage hike will be higher in FY12 than the last two years and attrition will also be on the incline,? said Sanjeev Hota, senior research analyst, Sharekhan.