IT Sector’s Revenue Growth To Moderate in March Quarter?

Information Technology (IT) shares like TCS and Infosys have been giving good returns for fairly a while. The sector’s income development is now anticipated to reasonable by 150 foundation factors (bps) quarter-on-quarter within the fourth quarter, given sturdy sequential development up to now two quarters and forex headwinds of about 30-60 foundation factors.

Research report by brokerage agency Prabhudas Lilladher stated, “We anticipate margins to decline by 40-80 bps qoq in Q4 led by supply-side pressures and decline in utilization due to ramp-up in hiring of fresher since the past few quarters. We believe margins will remain under pressure in FY23 as well given persisting supply side constraints and gradual return of travel and facility costs. We expect strong demand commentary from IT majors led by Infosys with revenue growth guidance of 11-13 per cent year-on-year CC for FY23.”

It said Infosys and TCS are expected to post 1.4-5.5 per cent qoq growth CC (constant currency) in revenues, while Mindtree and Coforge may register 3.9-8.5 per cent growth. Tech Mahindra is expected to lead the growth among major companies with 5.5 per cent qoq revenue jump, due to seasonal strength in communication and contribution from acquisitions.

IT companies will start declaring their financial results from next week, with TCS announcing on April 11, followed by Infosys (April 13) and Wipro (April 29).

“We anticipate margins (of the industry) to decline by about 40-80 bps qoq due to headwinds from aggressive hiring led drop in utilization and backfilling of attrition with lateral recruits at higher costs, partially offset by rupee depreciation and operating leverage,” Prabhudas Liladher added.

The sector is also expected to post healthy growth in headcount in Q4 as well as in FY23 given demand is chasing supply. Quarterly attrition will stabilize this quarter but is still at elevated levels. LTM attrition is expected to inch up. Russia Ukraine crisis is likely to add pressure on ER&D talent supply, the report said.

It added, “We expect healthy growth momentum in FY23 given continued demand for compressed technology transformation led by cloud, data analytics and customer experience. We expect Infosys to guide 11-13 per cent yoy CC growth in FY23 lower than 12-14 per cent yoy CC guidance, given at start of FY22 due to lower contribution from large/mega deals to TCV. We expect HCL to provide double digit revenue growth guidance. We estimate revenue growth of 12-15 per cent yoy USD for Tier 1 and 17-21 per cent yoy USD for Tier 2 in FY23.”

The brokerage agency expects Infy’s margin steerage to stay at 22-24 per cent for FY23. “Since HCLT’s margins are close to decrease finish of their FY22 steerage band of 19-22 per cent, we anticipate HCLT to decrease margin steerage band to 18-20% for FY23. We anticipate margins to stay underneath stress in FY23 led by continued provide aspect pressures and partial return of journey and facility bills.”

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