Q3 previews: KPIT Tech, Cyient, Birlasoft, Mphasis, LTTS, eClerx, LTIMindtree & Persistent Systems
December quarter results would see some impact of seasonal holidays and furloughs, in addition to a marginal cross-currency impact. Analysts noted that the commentary by tier II IT players was optimistic post Q2 results, with some caution building on the furloughs. There have been instances of extended sales cycle, with a few accounts having witnessed more scrutiny on the deal signing activities, they noted. Net-net, year-on-year profit growth figures are likely to be in double digits for midcap and smacallap IT firms, estimates suggest.
KPIT Technologies | Invesco
Invesco is expecting KPIT Technologies (KPIT Tech) to report a sequential organic revenue growth of 4.5 per cent in CC terms. Including Technica, it sees CC revenue growth at 16.9 per cent sequentially. The brokerage is expecting a flattish Ebitda margin, with Ebit largely to be impacted by amortisation cost of Technica. Net-net, it sees profit at Rs 94.50 crore (up 34.5 per cent YoY, up 13.1 per cent QoQ). It sees revenues at Rs 913 crore, up 46.7 per cent YoY or 22.6 per cent QoQ. Dollar revenues are seen at 111 million. Ebit margin is pegged at 13.8 per cent against 14.2 per cent in September and 13.5 per cent in the year-ago quarter.
Cyient | Motilal Oswal Securities
Motilal Oswal is expecting Cyient to report a 11.7 per cent sequential growth in CC revenues. Organic growth should remain strong at 3.1 per cent, the brokerage said while expecting a 60 bps improvement in sequential margin. It expects a strong rebound in DLM business while Aerospace vertical should
see strong revival, Motilal said adding that the commentary on margins will be the key monitorable.
This brokerage sees adjusted profit rising 12.5 per cent YoY (21.6 per cent QoQ) to Rs 148.10 crore on a 35 per cent YoY rise in sales at Rs 1,597.40 crore. Dollar revenue is seen rising 11.2 per cent QoQ to $194 million.
Mphasis | Kotak Institutional Equities
Kotak Institutional Equities sees another quarter of muted revenues for Mphasis on account of sharp decline in mortgage origination/ refinancing business, high furloughs and delay in deal ramp ups. It expects CC revenue growth to moderate to 8.2 per cent. The brokerage expects stable EBIT margin while adding that the impact of furloughs and weak growth will be offset by rupee depreciation. Kotak is not forecasting any meaningful growth in deal TCVs. Overall profit is seen rising 18.4 per cent YoY (1.3 QoQ) to Rs 423.70 crore on 16.3 per cent YoY (3.2 per cent QoQ) rise in sales at Rs 3,631.70 crore.
“We expect investors to focus on reasons for underperformance on growth, health of deal pipeline and conversion rate, assessment of headwinds to Digital Risk business, a segment involved in mortgage origination and refinancing activity in the US and how will the client behaviour differ in the current slowdown vs. the past,” Kotak said.
eClerx | Nuvama Institutional Equities
Nuvama expects eClerx to report a 1.3 per cent QoQ growth in revenues in CC terms and a similar revenue growth in dollar terms. It sees margin falling 60 basis points sequentially. It said it would keenly watch out for commentary on demand and any increase in roll-off risk due to macro headwinds. The brokerage sees profit rising 19.4 per cent YoY (1 per cent QoQ) at Rs 127.10 crore on a 22.8 per cent YoY (5.6 per cent QoQ) rise in sales at Rs 686.90 crore. Ebit margin is seen at 23 per cent, down 307 basis points YoY and 65 basis points QoQ. Dollar revenues are seen at $84 million.
LTIMindtree | Motilal Oswal Securities
Motilal Oswal said the combined entity should see slower-than-usual third quarter growth as strong December quarter for LTI would be partly offset by high furloughs in Mindtree. It expect 50-100 bps pass-through impact. Verticals such as Retail, Pharma, and Manufacturing are projected to be slower in while BFSI should continue to do well, it said. Net-net, Motilal Oswal sees 100-120 bps margin impact (QoQ on combined basis) due to furloughs. Further, LTIMindtree is expected to see a one-time
integration cost of 100 bps. Commentaries around integration, revenue synergies and deal pipeline remain the key monitorables for the stock. Revenues are seen at Rs 8,616.60 crore, profit at Rs 1,195.50 crore. Dollar revenues for this IT firm are seen at $1,048 million.
Birlasoft: Emkay Global
Emkay Global expects Birlasoft to report 0.8 per cent QoQ growth in dollar revenue after considering 10 bps cross-currency headwinds. EBIT margin is expected to improve 40 bps sequentially on account of operational efficiencies and weak rupee.
Overall, the brokearge sees 9.7 per cent YoY (8.6 per cent QoQ) growth in profit at Rs 125 crore on a 15.1 per cent YoY (3.5 per cent QoQ) rise in sales at Rs 1,234 crore. Ebitda margin is seen at 15.2 per cent against 14.8 per cent in September and 15.2 per cent in the year-ago quarter.
Investor would watch out leadership transition and growth strategy, order wins, FY23 revenue growth and margin outlook, demand trends in the enterprise solutions business and any impact from macro uncertainties.
Kotak is forecasting 1.5 per cent sequential CC revenue growth for L&T Technology Services (LTTS), driven by strong growth in transportation vertical across all sub-segments on account of ramp up of large deal wins. It expects reasonable growth in industrial products, driven by digital, cost take-out and sustainability related programs. Growth will be muted in other verticals. Furloughs will impact plant engineering although demand trends are favourable for growth recovery, it said.
The domestic brokerage is expecting a 30 bps sequential increase in EBIT margin to 18.4 per cent aided by rupee depreciation, higher fresher billability and higher offshoring partially offset by increase in G&A from 2QFY23 lows of 11 per cent of revenue.
“We expect LTTS to marginally increase growth guidance to 15-16 per cent. Earlier guidance of 14.5-15 per cent is a tad conservative and implies muted growth in 4QFY23. We expect moderate growth in 4QFY23,” Kotak said.
Overall, profit is seen rising 19.6 per cent YoY (5.4 per cent QoQ) to Rs 297.70 crore on 21.2 per cent YoY (2.5 per cent QoQ) rise in sales at Rs 2,045.70 crore.
Persistent Systems | Emkay Global
Emkay Global expects expect 2.7 per cent QoQ dollar revenue growth for Persistent Systems, with cross-currency headwinds of 30 basis points. It expects EBIT margin to expand 20 basis points sequentially on account of rupee depreciation. It sees profit to rise 33.7 per cent YoY (7.2 per cent QoQ) to Rs 235.80 crore on 44.8 per cent (5.4 per cent QoQ) rise in sales at Rs 2,160 crore. Ebitda margin is seen at 18.1 per cent against 18 per cent in September and 16.8 per cent in the year-ago quarter.
Investors may watch out for growth and margin outlook, demand momentum continuity amid macro uncertainties, 2023 IT budget, deal intake and pipeline and demand trends across BFSI, healthcare and technology verticals.
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