The techs are prepping to announce their fourth quarter earnings for FY23. TCS will be the first to kick start the season followed by peers Infosys and HCL Tech. Others will follow suit later in the month. The sector is expected to witness a seasonally weak quarter, with muted growth seen in both revenue and margins. Among key factors to watch would be guidance and BFSI verticals amidst banking systems turmoil.
The techs are prepping to announce their fourth quarter earnings for FY23. TCS will be the first to kick start the season followed by peers Infosys and HCL Tech. Others will follow suit later in the month. The sector is expected to witness a seasonally weak quarter, with muted growth seen in both revenue and margins. Among key factors to watch would be guidance and BFSI verticals amidst banking systems turmoil.
TCS will be the first to announce its Q4 result on April 12, followed by Infosys on April 13. Cyient and HCLTech will present their results on April 20, L&T Technology Services on April 26th, while Tech Mahindra and Wipro on April 27th.
TCS will be the first to announce its Q4 result on April 12, followed by Infosys on April 13. Cyient and HCLTech will present their results on April 20, L&T Technology Services on April 26th, while Tech Mahindra and Wipro on April 27th.
In its preview research report, ICICI Direct analysts said that “Q4 is seasonally weak for IT companies on account of fewer working days, some additional furloughs in January. Q4 this year has been eventful for the IT sector wherein on the one hand global IT giant Accenture continued to report strong bookings in the outsourcing business (proxy to Indian IT companies) while, on the other hand, we witnessed fast-paced events unfolding in the global BFSI space (30-38% revenue mix for top three IT players).”
In its preview research report, ICICI Direct analysts said that “Q4 is seasonally weak for IT companies on account of fewer working days, some additional furloughs in January. Q4 this year has been eventful for the IT sector wherein on the one hand global IT giant Accenture continued to report strong bookings in the outsourcing business (proxy to Indian IT companies) while, on the other hand, we witnessed fast-paced events unfolding in the global BFSI space (30-38% revenue mix for top three IT players).”
Also, ICICI Securities analysts in their preview report said, “IT companies under our coverage, ahead of their silent period, have mentioned increased cautiousness among clients around decision-making due to heightened uncertainty arising from the recent banking crisis. Deal pipelines have not shrunk, but conversion to new deal wins is taking longer time. Also, in certain cases, conversion of order book to revenues in terms of deal ramp-ups are taking longer than usual.”
Also, ICICI Securities analysts in their preview report said, “IT companies under our coverage, ahead of their silent period, have mentioned increased cautiousness among clients around decision-making due to heightened uncertainty arising from the recent banking crisis. Deal pipelines have not shrunk, but conversion to new deal wins is taking longer time. Also, in certain cases, conversion of order book to revenues in terms of deal ramp-ups are taking longer than usual.”
Meanwhile, as per B&K report, most of the companies indicated that Q4FY23 will be a relatively negative — muted growth quarter. It added, “Even if we see some moderation, sequentially in some cases, yearly growth would be decent for all the companies.”
Meanwhile, as per B&K report, most of the companies indicated that Q4FY23 will be a relatively negative — muted growth quarter. It added, “Even if we see some moderation, sequentially in some cases, yearly growth would be decent for all the companies.”
In B&K’s large-cap basket, it expects Infosys to report a strong growth quarter and for TCS it is expected to be a normal quarter with good growth. While Tech Mahindra is seen to witness muted revenue growth.
In B&K’s large-cap basket, it expects Infosys to report a strong growth quarter and for TCS it is expected to be a normal quarter with good growth. While Tech Mahindra is seen to witness muted revenue growth.
While in the midcap basket, B&K expects LTIM, Persistent System, and Coforge are seen to report strong quarters. eClerx Services is seen to also report muted growth in the quarter.
While in the midcap basket, B&K expects LTIM, Persistent System, and Coforge are seen to report strong quarters. eClerx Services is seen to also report muted growth in the quarter.
Additionally, ICICI Securities in its note said, “We expect muted sequential revenue growth in the range of -1.9% (HCLT) to +0.5%(LTIM) in CC terms with BUY-rated TCS / INFY at 0.1%. Due to cross-currency tailwinds of 100-150bps during the quarter as major currencies like GBP, EUR, JPY appreciated against the greenback, USD revenue growth of companies under our coverage would be higher than CC revenue growth.”
Additionally, ICICI Securities in its note said, “We expect muted sequential revenue growth in the range of -1.9% (HCLT) to +0.5%(LTIM) in CC terms with BUY-rated TCS / INFY at 0.1%. Due to cross-currency tailwinds of 100-150bps during the quarter as major currencies like GBP, EUR, JPY appreciated against the greenback, USD revenue growth of companies under our coverage would be higher than CC revenue growth.”
While ICICI Direct expects Infosys to achieve its guided revenue growth of 16-16.5% for FY23 while for FY24 it expects the company to guide for mid to high single-digit revenue growth in CC terms.
While ICICI Direct expects Infosys to achieve its guided revenue growth of 16-16.5% for FY23 while for FY24 it expects the company to guide for mid to high single-digit revenue growth in CC terms.
EBIT margins of most companies are expected to decline QoQ except TCS, LTIMindtree & Coforge, others are expected to report a sequential decline, ICICI Direct’s note added.
EBIT margins of most companies are expected to decline QoQ except TCS, LTIMindtree & Coforge, others are expected to report a sequential decline, ICICI Direct’s note added.
Further, ICICI Direct highlighted that the macro environment remains challenging for IT companies as decision-making has been on the slower side which could be an additional headwind for Q4 revenues and beyond. It added, “Clients continue to spend on cloud transformation, which is a multi-year opportunity while cost take out deals continue to form a bigger pie in the deals.”
Further, ICICI Direct highlighted that the macro environment remains challenging for IT companies as decision-making has been on the slower side which could be an additional headwind for Q4 revenues and beyond. It added, “Clients continue to spend on cloud transformation, which is a multi-year opportunity while cost take out deals continue to form a bigger pie in the deals.”
However, the brokerage also cited that some IT players have clarified that they do not have meaningful exposure to regional US banks, which are in financial trouble. Thereby, the impact is expected to be minimal on BFSI by them.
However, the brokerage also cited that some IT players have clarified that they do not have meaningful exposure to regional US banks, which are in financial trouble. Thereby, the impact is expected to be minimal on BFSI by them.
For which, the brokerage’s note said, “We do not have the exact break-up of BFSI vertical revenue region wise (i.e. US, Europe, etc), but we do understand that US BFSI contributes ~19-20% of its revenue while the further break-up in terms of insurance, banks, etc, is not available. Consolidation of two large Swiss banks was another big event wherein IT deals at the two companies will likely consolidate in the medium term and may shrink further deal sizes of this account.”
For which, the brokerage’s note said, “We do not have the exact break-up of BFSI vertical revenue region wise (i.e. US, Europe, etc), but we do understand that US BFSI contributes ~19-20% of its revenue while the further break-up in terms of insurance, banks, etc, is not available. Consolidation of two large Swiss banks was another big event wherein IT deals at the two companies will likely consolidate in the medium term and may shrink further deal sizes of this account.”
Overall, Motilal Oswal in its report for IT sector said, “we estimate USD revenue/INR EBIT/INR PAT to grow by 8.4%/15.9%/11.2% YoY in 4QFY23 for our IT Services coverage universe, which implies FY23E USD revenue/INR EBIT/INR PAT growth of 10.6%/11.4%/7.8%.”
Overall, Motilal Oswal in its report for IT sector said, “we estimate USD revenue/INR EBIT/INR PAT to grow by 8.4%/15.9%/11.2% YoY in 4QFY23 for our IT Services coverage universe, which implies FY23E USD revenue/INR EBIT/INR PAT growth of 10.6%/11.4%/7.8%.”
Motilal added, “our T Services coverage universe is expected to deliver a median revenue growth of 0.8% QoQ and 9.2% YoY in constant currency (CC) terms in 4QFY23. Major currencies have appreciated against USD (EUR +5.2% and GBP +3.8%), which will provide tailwinds. EBIT/PAT are expected to grow by 1.2%/3.0% QoQ, due to weak topline growth.”
Motilal added, “our T Services coverage universe is expected to deliver a median revenue growth of 0.8% QoQ and 9.2% YoY in constant currency (CC) terms in 4QFY23. Major currencies have appreciated against USD (EUR +5.2% and GBP +3.8%), which will provide tailwinds. EBIT/PAT are expected to grow by 1.2%/3.0% QoQ, due to weak topline growth.”
In case of BFSI, Motilal’s note said, “while the BFSI sector has been resilient for the last few quarters, recent industry developments have added to caution on its tech spending. Though the Indian IT services firms do not have meaningful exposure to the affected US regional banks, fears of a banking crisis could impact near-term IT spending by banks and will be the key monitorable during the 4Q management commentary.”
In case of BFSI, Motilal’s note said, “while the BFSI sector has been resilient for the last few quarters, recent industry developments have added to caution on its tech spending. Though the Indian IT services firms do not have meaningful exposure to the affected US regional banks, fears of a banking crisis could impact near-term IT spending by banks and will be the key monitorable during the 4Q management commentary.”
B&K’s top picks are — Infosys, Tech Mahindra, LTI Mindtree, Coforge, and Persistent.
B&K’s top picks are — Infosys, Tech Mahindra, LTI Mindtree, Coforge, and Persistent.
ICICI Direct’s top picks are LTI Mindtree and Coforge.
ICICI Direct’s top picks are LTI Mindtree and Coforge.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
