Information technology firms Tata Consultancy Services (TCS), Wipro, Infosys and HCL Technologies are slated to announce their third-quarter results next week. The forthcoming quarterly results are crucial for the IT majors after a tepid performance on Dalal Street in 2022. Take this: The BSE IT index plunged 24 per cent in the past 12 months due to the ongoing slowdown in the US and Europe, which contributes over 60 per cent to some of the IT majors. On the other hand, the benchmark BSE Sensex gained 4 per cent during the same period.
Market watchers see the potential for negative surprises across the board on revenue led by higher furloughs and pressure on the existing book of business. While sharing its view on the IT sector, Investec Capital Services (India) said, “The risk for IT services stocks is continued revenue weakness in H2FY23 followed by a tepid start to FY24E. This could bring down Tier-1 growth expectations to 6-7 per cent vs 8 per cent at present, leading to a potential contraction in P/E multiples.”
Shares of Wipro plunged the most 45 per cent in 2022. It was followed by HCL Technologies (down 21 per cent), Infosys (down 20 per cent) and Tata Consultancy Services (down 13 per cent). Here’s what can be expected from their December quarter result.
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Tata Consultancy Services
The IT behemoth will announce its Q3FY23 result on January 9. Nirmal Bang Securities expects TCS to report revenue growth of around 1 per cent QoQ on a constant currency basis, backed by strong order inflow of the last 12 months. It is likely to face a cross-currency headwind of only 30bps on a QoQ basis. For Q3FY23, the brokerage thinks that the EBIT margin will expand by 100 basis points QoQ, driven largely by pyramid rationalisation and help from rupee depreciation (being the largest driver). “Unless we see a good spike in order inflow in H2FY23, we believe that total order inflow for FY23 will at best be flat YoY and very likely be lower. The hiring slowdown is expected to continue. Net hiring number will also serve as a harbinger of any growth slowdown, although the company has been saying otherwise,” Nirmal Bang Securities said adding TCS may report 16.4 per cent growth in revenue on a year-on-year basis in Q3FY23, while profit may grow 14.60 per cent YoY. On the other hand, it sees 2.90 per cent QoQ and 7.40 per cent QoQ growth in revenue and profit after tax during the quarter.
Investec Capital Services has a ‘Sell’ rating on TCS with a target price of Rs 3,062. Shares of the company settled at Rs 3,311 on January 3, 2023.
Infosys
The IT major will report its Q3FY23 results on January 12, 2023. Nirmal Bang Securities sees 19.20 per cent YoY and 4 per cent QoQ growth in revenue of Infosys in the December quarter. However, it thinks that the IT major may post a 12.70 per cent YoY and 8.70 per cent QoQ rise in profit after tax.
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“With FY23 revenue growth (15-16 per cent in CC terms) and margin guidance (21-22 per cent at the lower end) tightened down from the earlier 14-16 per cent and 21-23 per cent range respectively, we expect the company to only achieve the lower end of this guidance in both cases. We do not see any further changes to the guidance for FY23. TCV to be around $2bn, reflecting a QoQ decline after a record Q2FY23 (highest in 7 quarters),” Nirmal Bang Securities said in a report. Investec Capital Services has a ‘Buy’ rating on Infosys with a target price of Rs 1,665. Shares of the company closed at Rs 1,522.55 on January 3.
HCL Technologies
The company will also post its Q3FY23 results on January 12. Brokerage IDBI Capital Markets believe that revenue (in CC) terms will grow by 2.8 per cent QoQ with no material impact of cross currency. This is mainly due to product revenue growth of 18 per cent QoQ. “EBIT margin to grow by 117 bps QoQ mainly due to easing of supply-side challenges,” IDBI Capital Markets said.
Investors should zero in on the outlook on product business, ER&D business given the turmoil in Europe, commentary on the deal pipeline, especially large deals, pricing, attrition trend, margin outlook, M&A plans and tech spends by clients.
An assessment by the IDBI Capital Markets showed that HCL Technologies may post 16.60 per cent YoY and 5.5 per cent QoQ growth in revenue and 12.70 per cent YoY and 11.20 per cent QoQ rise in net profit.
Wipro
Wipro will report its December quarter earnings on January 13. Market participants should zero in on the outlook for Q4FY23, commentary on the large deal wins, commentary on client mining, commentary across verticals-especially BFSI, consumer and manufacturing business unit, attrition trends, M&A and capital allocation, outlook on European region and any other macro challenges.
IDBI Capital Markets sees 15.50 per cent YoY and 4.1 per cent QoQ growth in revenue of Wipro in Q3FY23. In contrast, it sees a fall of 3.4 per cent in net profit on a year-on-year basis. However, the brokerage believes that the bottom line of the company may grow 10.30 per cent QoQ. The brokerage has a ‘Hold’ rating on Wipro with a target price of Rs 425. Shares of the company closed at Rs 397 on January 3.
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