TCS, Infosys, HCL Tech Q2FY22 results preview: Strong growth, large deals, weak margins, talent retention

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October 05, 2021 4:27 PM

Indian IT companies -- TCS (Tata Consultancy Services), Infosys, HCL Technologies -- are likely to post healthy growth in the second quarter of FY22, driven by a ramp-up in large deals

TCS, Infosys, HCL Tech, IT sectorTCS is set to announce the July-September quarter earnings of the current fiscal later this week

Indian IT companies — TCS (Tata Consultancy Services), Infosys, HCL Technologies — are likely to post healthy growth in the second quarter of FY22, driven by a ramp-up in large deals. Analysts expect management commentary in FY22 to remain strong, with better than usual seasonality in the third quarter, which will aid the full-year outlook. “Overall demand environment remains buoyant across the board; mid-tier companies continue to outperform top-tier. Still, TCS and HCL Tech in particular, who reported a weak first-quarter growth, should report a stronger second quarter,” said analysts at HSBC Global. Also, recent earnings from industry peer Accenture indicate a strong and sustainable demand environment, with continued spend on Digital and Cloud adoption.

Tata Consultancy Services

TCS is set to announce the July-September quarter earnings of the current fiscal later this week. Analysts at HSBC Global said that wage hikes are behind for TCS; strong revenue growth, benign currency movements and further operational gains this quarter should see a margin increase of 50bps sequentially. Commentary on deal wins and demand environment will be key. Those at Motilal Oswal Financial Services expect a PAT growth of 16 per cent for TCS. While IDBI Capital expects sequential revenue growth of 4.1% in constant currency partially offset by cross-currency headwind of 60bps.

Infosys

Infosys will announce its second-quarter earnings of the current fiscal next week on October 13. Motilal Oswal expects strong revenue growth led by a ramp up in large deals (Daimler deal ramp-up). Jefferies estimates a 2% quarter-on-quarter cc contribution from the Daimler deal, leading to industry-leading organic growth. The Daimler deal impact will have to be considered. Analysts at HSBC Global Research expect some positive commentary on pricing (moderate and gradual) and that would provide comfort to consensus even if 2Q margins are a tad weaker.

HCL Technologies

Emkay Global Financial Services expects HCL Technologies to report margin expansion on the back of normalization of wage hikes and revenue growth-led operating leverage. It is likely to retain its double-digit revenue growth guidance for FY22. Those at Motilal Oswal said that HCL Tech will also see headwinds from retention and skill allowance. This implies some margin drag v/s 1QFY22, despite adjusting for 90bp one-off cost in 1Q. “. Its robust deal wins and strong deal pipeline have improved its near-term revenue growth visibility and gives us confidence in its growth story,” HSBC Global said.

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