Software Inc is getting dressed for the Q1 earnings party, but there are many killjoys waiting on the sidelines. While the 12% rupee depreciation is a good cushion to bank on, cross currency headwinds will be the biggest deterrent. All the majors are likely to report some amount of forex losses on outstanding hedging contracts.
Of all the top tier IT firms, Wipro is likely to deliver the slowest sequential dollar revenue growth if you go by a recent Barclays equity report. As has been the trend in the recent past, TCS is expected to lead the pack this time too.
However, most attention will be on Infosys, which is sitting pretty on a $4 billion cash reserve. Every time it raises hopes of an acquisition, Infosys flatters to deceive. Analysts are shouting ?action?, but Infosys is lying low. When Infosys declares its results on July 12, all ears will be up to hear the talk on prospective targets.
HSBC in its recent note stated that it had met the Infosys management, who assured that the company was on track to meet the first quarter guidance. The growth outlook for the quarter was 0-1% sequentially and 6-7.1% year-on-year. Infosys admitted that the banking and financial services vertical remained laggards during the quarter. Only retail showed strong growth, HSBC said.
As per the Barclays note, TCS is likely to report quarterly revenue growth of 1.7% (quarter-on-quarter) in dollar terms. This incorporates the negative cross currency impact of 1.5% points. In constant currency terms growth is projected at 3.2%. Margin expansion at TCS, the note added, is likely to be limited due to salary increases and quarterly variable payouts. Overall loss due to currency fluctuation could be close to R25 crore in the current quarter, the research note said.
On Infosys, Barclays was a bit cautious. It is likely to lower its FY13 revenue guidance (in dollar terms) to 6.5-8.5% from 8-10%, it stated. Margins are likely to show limited further upside, in line with recent management commentary of investing back into the business. However, weak rupee could boost earnings per share guidance for FY13 by 10-12%.
Wipro on the other hand had guided to a -1% to 0.9% sequential revenue growth for IT services for the fourth quarter. According to Barclays, the company is likely to show a 1.4% sequential decline because of cross currency impact. This includes the impact of cash flow hedges. Wipro?s margin expansion due to currency is likely to be limited to 100 basis points; part of the gains from the rupee depreciation will be offset by cross currency impact and salary increases effected in April. The company may guide for nearly 2% sequential revenue growth, it said.
HCL is where the positive surprise is. The company?s performance in top-line growth is likely to remain strong. It may report 1.4% (dollar terms) sequential revenue growth for the June quarter. Margins should expand by 70 basis points sequentially due to the weak rupee.
The weakness in the crucial banking, financial services and insurance (BFSI) segment is sure affect the earnings. Wipro in a recent analysts meet had talked about the issues in BFSI, which saw large budget cuts and immense pricing pressure.
More than anything else, it is the poor BFSI performance that will haunt IT firms in the long term.
TCS chief executive N Chandrasekaran has said that there is weakness in multiple markets. The global business environment will be volatile and recovery a prolonged exercise, he said while addressing the company?s annual general meeting. Trade body Nasscom has predicted that exports will rise by upto 14% to $78 billion this financial year. That number could be a tad too high to achieve this time around.