Despite seasonal weakness, we expect IT firms to deliver 3-3.9% q-o-q cc growth driven by deal ramp-ups. We expect aggregate margins to see a decline of 20bps q-o-q, due to supply side pressures. We believe Wipro/HCL Tech will lead on q-o-q cc growth and HCL Tech/ Infosys will lead on organic growth. We expect Wipro’s margins to decline by 70bps due to wage hikes, with broadly steady margins for other firms. Infosys and TechM are our top picks.
Seasonal slowdown; stable margins: We expect aggregate revenue growth for Top-5 IT firms to experience a seasonal slowdown, but remain healthy at 3.5% q-o-q cc. We expect reported $ revenue growth to be lower at 2.7% q-o-q, due to 75-100bps cross-currency headwinds. We estimate aggregate margins will moderate slightly to 21.7% (-20bps q-o-q), with impact from wage hikes/supply side pressures offset by cost efficiencies and INR depreciation.
TCS – Healthy growth with stable margins: We expect healthy growth of 3% q-o-q cc, driven by strong demand and deal ramp-ups. Aggregate margins are likely to be stable at 25.5% (-10bps q-o-q), with cost efficiencies and currency benefits absorbing higher supply side costs. The focus will likely be on comments on CY22 client budgets, demand trends, supply side pressures and margin outlook.
Infosys – Strong growth with modest margin decline: While growth will be impacted by seasonal softness, deal ramp-ups should help drive 3.7% q-o-q cc revenue growth. Within this, we estimate the Daimler deal to contribute another 1.3% q-o-q cc. Margins are likely to witness a modest decline of 20bps q-o-q to 23.3%, owing to higher supply costs. We expect Infosys to upgrade its FY22 growth guidance. Focus should be on demand outlook, client budgets and hiring/attrition.
HCL Tech – Strong growth with steady margins: We expect revenue growth of 3.8% q-o-q cc, with 2.8% q-o-q cc in Services and a strong 12% q-o-q cc growth in P&P segment. P&P segment would benefit from strong seasonality and deal closures that got delayed in Q2. Despite the impact of wage hikes, we expect margins to be steady at 19.1% (+10bps q-o-q). The focus will likely be on FY22 revenue/margin guidance, CY22 client budgets, hiring/attrition trends.
Wipro – Strong growth but margin decline: We expect Wipro to report a 3.9% q-o-q cc revenue growth (vs 2-4% q-o-q cc guidance). This includes 40bps inorganic contribution from Ampion. We expect Ebit margin to decline sharply by 70bps to 16.6% due to salary hikes. The focus will likely be on Q4FY22 guidance, deal wins, CY22 budgets, Edgile buy, hiring/attrition trends and strategic priorities.
TechM – Strong growth with stable margins: We expect revenue growth of 3.8% q-o-q cc. This includes 120bps inorganic contribution from Activus Connect, WMW, Lodestone, Beris and Brainscale. Despite supply side pressure, we expect TechM to keep stable margin at 15.1% (-10bps q-o-q). The focus should be on the outlook for communication vertical, 5G, margin outlook, deal wins and hiring/attrition.