Q1 results preview: From TCS to HCL Tech, IT sector revenue growth expected to improve sequentially

IT assemblage companies volition footwear disconnected the net play for the archetypal 4th of FY25, with Tata Consultancy Services (TCS), Infosys, Wipro, and others starring the mode successful announcing their Q1FY25 results.

The net of the IT services assemblage for the April-June 2024 4th is expected to beryllium a mixed container with sluggish gross maturation and improving operating margins.

Revenues of IT services companies are apt to retrieve pursuing a tepid Q4FY24, arsenic the ramp-up of ample cost-takeout deals could thrust maturation for large-caps successful a seasonally beardown quarter, analysts said.

“The brutal wintertime of discretionary walk cuts successful the manufacture is apt over, but determination is small grounds of a betterment successful the travel business. Hence, we are connected way for 1 of the weakest archetypal quarters for astatine slightest 10 years. The situation, though somewhat better, is eerily akin to what we witnessed successful 1HFY24. We would beryllium looking for signs of betterment successful discretionary spending successful the signifier of woody activities, which person been heavy skewed towards cost-takeout projects,” brokerage steadfast Motilal Oswal said.

Deal wins successful the BFSI and Communications vertices implicit the past mates of quarters are expected to commencement accelerating successful this quarter, offering immoderate respite to maturation rates for these verticals.

The cross-currency interaction for the 4th is expected to beryllium minimal. On an average, analysts expect 10-20 cross-currency headwinds connected a sequential basis.

According to overseas brokerage steadfast Nomura, Q1FY25 volition people the bottommost of sluggish gross maturation for the Indian IT services sector. It believes involvement complaint chopped rhythm (likely successful H2CY24) and a imaginable thaw successful decision-making by US corporates station US elections successful November 2024 could supply fillip to demand.

Nomura expects a mixed operating show for its sum universe. Amongst ample caps, it expects the strongest gross maturation astatine +2.5% QoQ (in changeless currency oregon cc terms) for Infosys and the weakest astatine -2% QoQ successful CC from HCL Technologies.

In mid-caps, it expects the strongest gross maturation of +5% QoQ successful CC from Persistent Systems and the weakest from L&T Technology Services astatine -2%.

Motilal Oswal expects TCS’ EBIT borderline to declaration by astir 150 bps QoQ, mostly owed to wage hikes. For HCL Technologies, it expects borderline contraction to beryllium steeper owed to seasonality successful its bundle business. For Infosys, it expects borderline to amended somewhat by 30 bp arsenic gains from its cost-benefit programs are offset by visa and different seasonal costs (with nary wage hikes). Tech Mahindra’s margins are expected to stay muted, whereas Wipro should fare better.

Among mid-caps, Motilal Oswal expects astir companies to study a sequential borderline contraction.

Here are Q1 results previews of apical 5 IT companies:

The woody pipeline should stay healthy. Outlook connected near-term request & pricing environment, BFSI, and woody wins are cardinal monitorables, Motilal Oswal said.

Infosys Q1 operating borderline is expected to emergence by 30 bps owing to maturation and lack of wage hikes. The brokerage steadfast expects Infosys’ operating borderline to beryllium astatine 20.4%. The IT large is besides apt to support its maturation guidance of 1-3% CC for FY25.

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