Analyst Corner: Expect revenue growth of 1.8-3.2 pc for Tier 1 IT vendors in Q3

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Published: January 8, 2019 2:10:42 AM

Q3 is a seasonally soft quarter owing to lower number of working days owing to holiday season as well as furloughs in select verticals.

Expect revenue growth of 1.8-3.2 pc for Tier 1 IT vendors in Q3 (IE)

Q3 is a seasonally soft quarter owing to lower number of working days owing to holiday season as well as furloughs in select verticals (retail, manufacturing). Hence, we expect tepid constant currency revenue growth of 1.8-3.2% QoQ for Tier 1 IT vendors. Wipro would have full impact of Alight Deal Revenues (additional 2 months consolidation). HCL Tech would have additional revenues from H&D International acquisition which would aid growth. Hence, Wipro and HCL Tech could show higher constant currency growth led by Inorganic initiatives.

Post two consecutive weak quarters, Tech Mahindra could show bounce back in growth in 3QFY19 led by ramp up of recent large deal wins in Telecom. GBP/EURO/AUD have appreciated vs USD by 2.3/2.5/2.7% for the quarter. Cross currency movements would be a headwind of 60-90bps on USD revenues for the sector. Hence, Tier 1 IT vendors would report a tepid 1.1% to 2.3% QoQ USD revenue growth for the sector.

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While BFSI has been showing steady performance in 2QFY19 for TCS/Infosys/Wipro, we would watch for the vertical’s performance in 3Q to measure consistency. Recent Accenture results have shown Accenture’s BFSI vertical revenues grew by a tepid 1% YoY for 1QFY19 (Accenture follows August 31 year ending). Accenture cited that growth was strong in Insurance vertical and emerging markets. However, Accenture cited that banking vertical has seen modest growth in North American Banks which was offset by contraction in European Banks. We also observe that most of UK ‘s large banking stocks have fallen by 30% in CY18 owing to Brexit-led concerns. Select other large European banks (Deutsche Bank) which have sizeable spends with Indian IT vendors have also seen steep challenges in CY18. Hence, BFSI traction for the sector would be keenly watched.

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