Expectations are muted as Indian IT services companies are gearing up to announce the results for a COVID-hit quarter. Analysts predict a sequential revenue fall of 4-8 per cent. Though it is expected that there could be margin decline in the June quarter, it may be limited due to currency depreciation and other cost optimisation measures that have been taken by the Indian IT services companies. It is said that the next quarter ending September 20 may bring in recovery and stability in business.
As per a latest report by Emkay Global Financial Services, the tier-I IT services companies are expected to report a 4-6 per cent quarter-on-quarter (qoq) revenue decline in US dollar, while tier-II IT companies may report a 4.5-8.1 per cent fall in their revenues in the June quarter. The report says there could also be a pressure outlook on pricing from the next quarter as clients may ask for fewer ‘WFH’ (work from home) arrangements. It is also expected that given the situation, there could be more signs of offshore deliveries.
There could be inorganic growth on behalf of Indian IT companies that may try to take over captive centres of their clients.
There are also speculations if Indian IT services companies would reinstate their future guidance practice from the June quarter as they had refrained from providing revenue or margin guidance due to the uncertainty in the business environment. The report adds that in case Infosys and HCL Technologies do provide a formal outlook, they would expect a 2-4 per cent y-o-y revenue decline guidance for FY21. A formal guidance would also signal that the companies are much more confident of client spending trends.
Going by the trend, IT major TCS reported a weak quarter and missed market estimates. Revenue in constant currency terms fell 6.9 per cent quarter-on-quarter leading to a 150 bps drop in EBIT margins, despite benefits from the rupee depreciation and lower travel expenses and other cost rationalisation measures. The net income for TCS for the quarter stood at Rs 7,008 crore, and was down by 13.8 per cent yoy. Operating margin and net margin came in at 23.6 per cent and 18.3 per cent respectively. The company also declared a dividend of Rs 5 per share.
“Besides the challenges, there were also few positives such as the BFSI vertical that witnessed strong deal wins and there the recovery trajectory is expected in continental Europe. However, there were key concerns such as slow recovery in the retail and the manufacturing vertical. The lateral hiring, frozen earlier, has been restarted selectively, while fresh on-boarding of 40,000 for the current financial year is on track from July,” remarked Amit Chandra, Assistant Vice-President, IT research at HDFC Securities.
