The information technology (IT) sector has remained a strong sector amid the COVID-19 pandemic, remaining largely unaffected by the recent Omicron wave and ongoing Russia-Ukraine war. However, the industry’s performance in January-March 2022 is going to be moderating amid several headwinds and TCS is expected to post constant currency revenue growth of 3.0-3.5 per cent on a quarterly basis, according to analysts.
The sector recently saw a strong performance on the back of the accelerated adoption of digital technologies and migration to cloud-based solutions across sectors. Also, the work from home (WFH) model continues to serve the IT sector well, which is now planning to implement the hybrid work model.
Analysts at ICICI Securities in a report said they expect TCS to see a dollar revenue growth of 2.7-3.2 per cent on a quarterly basis. “There would be cross-currency headwinds in the range of 20-50 bps for the (major) companies…, which would impact dollar revenue growth negatively.”
The report said Tata Consultancy Services (TCS) is expected to post a constant currency revenue growth in the range of 3.0-3.5 per cent on a quarterly basis. The company’s revenue is expected to grow 15.4 per cent year-on-year, while Ebitda (earnings before interest, tax, depreciation and amortisation) may jump 7.5 per cent year-on-year. The Tata group company is likely to report a profit after tax (PAT) of eight per cent on a year-on-year basis.
YES Securities in its report, however, said major IT companies such as TCS, Infosys and HCL Tech are expected to report higher sequential growth compared to Tier-1 companies such as LTI and Coforge.
It expects TCS to post a revenue growth of 15.7 per cent year-on-year, while the company’s year-on-year PAT growth is likely to be at 9.1 per cent on a yearly basis.
The YES Securities report said it expects broadly stable margin with attrition almost peaking out. “Management commentary on the outlook on growth environment would be key thing to watch out for.”
The report by ICICI Securities said, “Revenue growth momentum should continue in Q4 while margins would take a hit due to higher manpower expenses. TCS is expected to register 3 per cent QoQ growth in constant currency led by continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies, ramp-up of deals.”
It added that cross-currency headwind may lead to a revenue growth of 2.7 per cent QoQ in dollar terms; while in rupee terms, the revenue is expected to increase 3.1 per cent QoQ. “EBIT margins are expected decline 20 bps QoQ to 24.8% due to continued increase in employee costs amid high attrition. PAT is expected to improve 2.3% QoQ. Investor Interest: i) Corporate restructuring planned for FY23 ii) FY23 demand outlook/attrition/opening of travel.”
The report said, “The growth of Indian IT companies is expected to moderate in Q4FY22 as witnessed in Q4 quarters historically. Margins are expected to take a hit due to continued higher employee expenses. The demand environment continued to be strong led by continued deal momentum led by sectors like BFSI, insurance, etc.”
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