With IT earnings kicking off on Tuesday, brokerage firms expect wage hikes to be one of the major factors to impact the margin performance of the IT companies during the first quarter ended June.
Among the top-tier companies, TCS and Infosys are expected to post a sharp decline in margins on a quarter-on-quarter (q-o-q) basisas. Both the IT majors have implemented wage hikes from April 1.
Leading brokerage firms feel that in case of Infosys and TCS the fall in margins on an average would be in the range of 200-250 basis points.
However, the impact on Wipro?s margins are expected to be less at 100-130 basis points as the increment in wages in its case was effective from June 1, analysts said.
Among the top players, analysts expect HCL Technologies (HCLT) to deliver on its margin guidance as wage hikes kick in during the September quarter.
?Profitability of tier-I companies like TCS and Infosys is expected to slip by 7% and 9% q-o-q. For Wipro, the impact will be limited to a 1% q-o-q decline due to partial impact of the wage hike. However, for HCL Technologies profitability is expected to scorch up on the back of margin expansion and nil forex loss,? notes Angel Broking.
?We expect HCL Technologies? EBIT ( earnings before interest and taxes) margin to improve by 120 basis points q-o-q to 15.6% thanks to operating leverage on the back of higher volume growth,? the note adds.
According to Kotak, other than wage hikes, the key determinants of margin performance for the quarter include pressure from an appreciating rupee, gains from favourable cross-currency movements, pricing movement, and volume growth.
Among the mid-tier IT firms, profitability is also expected to slide steeply also on account of wage hikes and increasing tax rates with the expiry of STPI effective April 1. However, some brokerage firms feel with expected decline in margins for MindTree and Mphasis, there could be an upside surprise from Hexaware.
?Among the mid-caps NIIT Technologies? margins are likely to decline by around 270 basis points q-o-q and Polaris? margins could likely decline by 90 basis points q-o-q,? said Sharekhan.
Angel notes that in case of TechMahindra, it expects the margin to expand by 213 basis points q-o-q due to sales general and administrative (SGA) efficiency, growth in non-BT and absence of wage hikes.
Analysts point out that overall the quarter is expected to see a strong revenue growth for the industry at a broad level. ?We also expect positive outlook on demand in management commentaries to allay concerns of a slowdown,? noted Kotak.