IT sector earnings likely to bounce back: Here's how the top five companies may perform

SUMMARY

The September quarter earnings season is kickstarting from October 7, with TCS being the first company to report its earnings. Brokerage house Jefferies, in a recent report, said that it expects IT services firms to bounce back from June quarter lows and deliver 2.6 percent QoQ revenue growth with 65 bps QoQ margin expansion. It further added that pick up in growth is likely to be driven by reduced impact of supply-side constraints along with a healthy demand environment. Given a robust demand environment, it remains positive on the sector with Infosys as the top pick. Here's how it expects the top five IT firms to perform in the September quarter:

By Pranati Deva Oct 6, 2020 1:51:57 PM IST (Published)

TCS: Jefferies expects TCS to deliver revenue growth of 2.6 percent QoQ in constant currency terms and a 140 bps expansion in margins to 25 percent. The pick up in growth will be driven by ramp-up/conversion of large deal wins to revenues and resolution of supply-side constraints, it added. The focus would be on buyback particulars, deal total contract value, management commentary on-demand trajectory, and potential consolidation opportunities, it further noted.

Infosys: The brokerage expects Infosys to grow revenues at 2.9 percent QoQ in constant currency terms with stable margins on a QoQ basis. Revenue growth will be driven by the ramp-up of large deals, which could also lead to an increase in revenue growth guidance, it added. The focus will be on growth guidance, margin stability, potential change in onsite-offsite mix and its impact and consolidation opportunities.

HCL Technologies: Jefferies expects HCL Tech to report 3.6 percent QoQ revenue growth in constant currency terms, best among peers with margin stable at 20.7 percent QoQ. It noted that the firm may add to its growth guidance of 1.5-2.5 percent in the March quarter to factor its recent acquisition of DWS. The focus will be on guidance, demand environment, stance on acquisitions and payouts and recovery in ER&D (engineering, research and development) services.

Tech Mahindra: The brokerage forecasts Tech Mahindra to deliver 2 percent QoQ revenue growth in constant currency terms and 150 bps expansion in margin QoQ. Revenue growth will be supported by a revival in the BPO segment and growth in BFSI, it added. Jefferies also expects a sharp expansion in margins led by revenue growth, an increase in utilization rates and cost optimization across both standalone and portfolio companies. The focus will be on 5G opportunity, sustained margin improvement and capital allocation.

Wipro: The brokerage expects Wipro to report a 1.6 percent QoQ growth in revenues in constant currency terms and stable margins. It stated that the growth will be driven by the removal of supply-side constraints and deal ramp-ups. The focus will be on any potential buyback announcement, strategy to revive growth and growth guidance.