HCL Tech may be star player in dull year for tech services sector
it announces its results on 12 April. Infosys, Wipro and HCL report earnings on 18, 19 and 26 April, respectively.
Analysts said the IT sector’s overall tepid performance could be attributed to the delay in discretionary tech spending. Abhishek Bhandari, executive director of equity research at Nomura, said the IT services industry presently has no signs of discretionary demand revival. “Indian IT services companies are likely to see some respite from weak seasonality and furloughs of the December quarter (of FY24). However, in the absence of a firm recovery in discretionary demand, growth recovery in
Q4FY24, and FY25, should be led primarily by cost-takeout projects… suggesting the current slowdown’s impact extending into FY25 discretionary spends,” Bhandari said. He also expressed caution on the industry’s near-term growth prospects due to “limited visibility on a significant turnaround in discretionary demand.”
A Bloomberg poll of 43 analysts projected TCS to report FY24 revenue of $28.97 billion, thus registering a March quarter revenue of $7.26 billion—a marginal sequential decline. Net profit, however, is expected to grow 6% y-o-y to $5.53 billion, per Bloomberg analysis.
For Infosys, a poll of 38 anawhen lysts projected 1.7% annualized revenue growth to $18.52 billion, although net profit could take a marginal hit to $2.95 billion. March quarter revenue for Infosys could thus see a 3% sequential decline.
For HCL, Bloomberg estimates 4.7% revenue growth to $13.2 billion for FY24, while net profit is projected to rise 3.3% to $1.9 billion. This leaves projected quarterly revenue at $3.36 billion—a 1.8% potential sequential decline, but still up substantially from FY23’s March quarter.
Wipro, as per 38 analysts polled by Bloomberg, is projected to report $10.77 billion in annual revenue for FY24, and $2.62 billion in March quarter. This translates to a 4% possible sequential revenue decline for Wipro, in what has been a year to forget for the company. Net profit, as per 39 analysts, could decline 4% y-o-y to $1.32 billion.
Chirajeet Sengupta, managing partner at financial research and consultancy firm Everest Group, concurred, adding there have been “no signs of recovery that the has seen through the last three months of FY24.”
Apurva Prasad, vice-president of institutional research at HDFC Securities, said in the investor note that growth in the industry, in the March quarter, “is expected to bottom out.” “Growth will recover ‘gradually’ in FY25. The slowdown in macro is still a baseline scenario, and lower discretionary spending and slower conversion from total contracted value (i.e. the value of deals signed by these companies) to revenue is a feature and not a bug—at least in the near term. Deals will thus be focused on cost optimization,” Prasad’s note said.
For the top IT services firms, converting deals to billable projects has been a challenge. While companies have signed a large number of deals, most of them, as per industry executives, are deferred in terms of their billing cycles. For clients, many prefer delaying a signed-on tech project—which is often a sign of macroeconomic concern and sectoral weakness.
Everest’s Sengupta said that recovery is likely to be slow. “We do expect the second half of this calendar year to show some signs of recovery, part of which would be driven by a base effect of the decline in discretionary deals, which started from around mid-calendar year 2023. Beyond a point, there’s only so much that one can delay tech spending, and digiindustry talization is a crucial factor for pretty much all companies— making such spends less discretionary in nature,” he said.
However, he also warned about weak prevalent macroeconomic conditions around global geographies. “Over the past few weeks, macroeconomic signals do not seem to be picking up as positively as one would have hoped. Inflation is proving to be slightly more stubborn than what one had expected, and quite a few economies are going into recession. It will therefore be a slow recovery, and there definitely won’t be a U-shaped recovery that we had previously expected.”
(With inputs from Mayur Bhalerao)