Three of the top Indian IT companies -- TCS, Infosys, and HCL Technologies -- are expected to post a healthy set of numbers in the first quarter of FY22 earnings.
Three of the top Indian IT companies — TCS, Infosys, and HCL Technologies — are expected to post a healthy set of numbers in the first quarter of FY22 earnings. Analysts see the IT sector continuing reporting strong momentum with accelerated hiring, faster revenue/earnings growth, and higher cash flow conversion. “IT companies will report further acceleration in on-year revenue growth trajectory with Infosys expected to lead the charge amongst the Tier I techs in terms of sequential revenue growth,” said analysts at JM Financial Institutional Securities. Also, despite a high base effect in the second half of FY21, analysts see a strong demand environment and expect deal wins to result in continued strength across large-cap and midcap IT companies.
Analysts at Motilal Oswal Financial Services believe that recent commentary from industry peer Accenture points to a better than expected demand environment. Moreover, commentary with regard to FY22 to remain constructive, with firms maintaining their double-digit revenue growth guidance. “We also expect better clarity from companies like Infosys, HCL Technologies, and L&T Technology Services, which highlighted COVID-19 related uncertainty in their outlook in 4QFY21,” it added.
Tata Consultancy Services: TCS is set to announce the April-June quarter earnings of the current fiscal later this week. Analysts at JM Financial Institutional Securities expects constant currency growth of 3 per cent sequentially, and 30bps of cross-currency tailwinds. Despite the FY22 wage increments being rolled out from Apr’21, EBIT margin decline is expected to be limited to 110bps, due to slight INR depreciation and growth leverage. Key things to watch out for are large deal TCV, outlook on client spending trends and pricing trends, and levers to defend or improve margins in the backdrop of certain supply-side concerns. JM Financial raised its TP by 8.2 per cent to Rs 3,300, Motilal Oswal expects strong growth led by a ramp-up in large deal wins in Q4FY21, robust TCV led by continued momentum in deal wins, and decline in sequential margin on account of wage hike during 1QFY22.
Infosys: Infosys will announce its first-quarter earnings of the current fiscal next week on July 14. Analysts expect strong revenue growth on the ramp of large deals and higher billing days. HDFC Securities has raised Infosys’ target price by 12 per cent to Rs 1,730 apiece. Similarly, Nirmal Bang increased TP by 18 per cent to Rs 1,167 apiece. JM Financial has raised by 7.2 per cent to Rs 1,630. Analysts at Nirmal Bang expect Infosys to raise its current revenue growth guidance only after 2QFY22. Those at JM Financial Services believe that Infosys may raise its FY22 revenue guidance a tad from the current 12-14% YoY c/c growth range while maintaining its EBIT margin band of 22-24 per cent.
HCL Technologies: JM Financial has revised its target price upward by 3.4 per cent to Rs 1,075 apiece, those at HDFC Securities Institutional Equities by 13 per cent at Rs 1,185, and Nirmal Bang by 15 per cent at Rs 1,320 apiece. Analysts expect HCL Tech to quantify its double-digit revenue growth outlook. Manik Taneja and Vishnu KG, research analysts at JM Financial, see weak sequential revenue growth. Investors are likely to focus on the outlook on CY21 client spending/IT budget trends, update on revenue and margin outlook for FY22, and measures to defend/protect margins in the backdrop of supply-side pressures. Those at Motilal Oswal expect ramp-ups on deals won in 4QFY21 in 2Q/3QFY22 and improved clarity on guidance.
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