Capgemini, which came out with its fourth quarter results this week, gave a soft revenue guidance for Calendar 2023, even as it reported a strong revenue growth and bookings for the quarter. While announcing its December quarter results, Capgemini gave a revenue growth guidance of 4-7 per cent in constant currency (CC) terms and suggested operating margin in 13-13.2 per cent range. Capgemini expected Calendar 2023’s organic free cash flow around 1.8 billion euros.
Capgemini in a press release said bookings for December quarter rose 11.4 per cent at constant exchange rates to reach 6,685 million euros, corresponding to a book-to-bill ratio of 1.16. Revenue in CC terms was up 14 per cent at 5,754 million euros.
ICICI Securities said a strong revenue growth and record-high order book with a healthy book-to-bill ratio of 1.16 times reported by Capgemini in December quarter, imply resilient demand on the back of cloud migration and continuation of multi-year strategic digital initiatives of clients. TCS and Infosys too indicated resilient tech spending in their earnings commentary, it noted.
“IT services deal activity was reasonably healthy with TCV improving on QoQ basis for Infosys, Wipro, TechM and Mphasis. Commentaries from large US banks suggest that the banks will continue with their multi-year technology transformation agendas. Citi and Bank of America plan to increase their tech spend by 5 per cent and 9 per cent YoY respectively, in CY23,” ICICI Securities said.
That said Capgemini’s soft revenue growth guidance of 4-7 per cent YoY in CC terms (3.5-6 per cent organic) implies slowdown in growth in 2023 over 2022 due to macro weakness. ICICI Securities said it is factoring in a slowdown in growth in 2023 and is estimating 8.9 per cent YoY CC revenue growth for TCS (against 14.7 per cent in 2022) and 10 per cent growth for Infosys (18.4 per cent in 2022) in 2023.
ICICI Securities said the revenue guidance was conservative. Lower end of the guidance assumes further deterioration of the macro in the second half of 2023, while the higher end assumes revival of growth in Q4CY23.
“We believe Indian IT’s higher presence in India bodes well amid shift towards global delivery centres due to talent shortage in the developed markets. TCS and Infosys stand to gain from the offshore shift. Plus, they are best placed to cater to clients’ cost optimisation and vendor consolidation agendas. We reiterate ADD on TCS and Infosys with target price of Rs 3,834 and Rs 1,772, implying upside of 11 per cent/12 per cent respectively,” ICICI Securities said.
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