Fourth-quarter earnings season is set to start with IT major Tata Consultancy Services (TCS), which is scheduled to announce its March quarter results on Monday post-market hours. According to market watchers, the top-line growth for the sector is expected to remain strong on a year-on-year (YoY) basis driven by accelerated adoption of digital technologies and migration to cloud-based solutions in the aftermath of this Covid-19 pandemic.
Other IT majors including Infosys, HCL Technologies and Wipro will announce their financial results on April 13, April 21 and April 29, respectively. HDFC Securities projected that major IT firms including TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra together may report 20.40 per cent and 10.1 per cent year-on-year growth in net sales and net profit in Q4.
However, KR Choksey Shares and Securities added that the margin during the quarter is expected to contract on a sequential basis, largely impacted by supply-side challenges, lower utilisation and higher retention cost.
“Our thesis suggests that the absolute return is likely to get impacted by the rising cost of capital and geopolitical risk premium, inflationary factors, and the lead-lag cycle of cost and pricing,” KR Choksey said while retaining a positive sector stance on the IT sector. The brokerage prefers Infosys and HCL Technologies at the top of the pecking order, backed by strong commentary by the global technology companies.
Anand Rathi Share and Stock Brokers said, “With the pandemic-triggered volatility behind, we expect 17 of the 18 coverage companies to clock quarter-on-quarter revenue growth (median 3.7 per cent) in Q4 FY22. 14 out of 18 coverage companies likely to clock over 17 per cent year-on-year revenue growth in Q4 of which 4 expected to clock more than 30 per cent growth.”
It further expects the industry to maintain an over 19 per cent steady EBITDA margin in Q4. “Although lowest in FY22, the expected profit after tax margin in Q4 at 13.6 per cent would be much better than the same in recent years. Rupee benefit likely to appear in Q1,” Anand Rathi said in a report.
The brokerage further sees a modest dip in Q4 in quarterly attrition. “We expect wage pressures to be a little lower in FY23 as the year progresses and hiring cools off. Rupee depreciation to also support margins,” Anand Rathi Share and Stock Brokers said.
Coming to company-specific earnings, YES Securities said, “We expect broadly stable margin for TCS with attrition almost peaking out. Management commentary on outlook on growth environment would be the key thing to watch out for.” The brokerage projected a 15.7 per cent YoY and 3.4 per cent quarter-on-quarter (QoQ) rise in revenue for the quarter ended March 31. YES Securities also forecasted a 9.1 per cent YoY and 3.3 per cent QoQ rise in net profit.
KR Choksey sees 15 per cent YoY growth in net sales in Q4FY22 and a 9 per cent YoY rise in net profit for TCS. On the other hand, it foresees 25.30 per cent YoY growth in sales for Infosys and a 16.30 per cent YoY rise in net profit for the IT major.