Though the global economy is undergoing a phase of uncertainty due to geopolitical tensions and the COVID-19 impact, analysts said the growth of Indian IT companies is expected to pick up in the first quarter of 2022-23, barring weakness in a few companies due to company-specific events. India’s largest IT services company Tata Consultancy Services (TCS), which is scheduled to declared its financial results on Friday, is expected to register a 3 per cent quarter-on-quarter growth in constant currency.
“TCS’ revenue growth momentum should pick up on account of acceleration in deal execution but margins are expected to be impacted by annual salary wage revision effective from April 2022. TCS is expected to register 3 per cent q-o-q growth in constant currency led by continued improvement in demand from BFSI, healthcare and retail, acceleration in digital technologies, ramp-up of deals. Further, cross-currency headwinds of 140 bps would lead to revenue growth of 1.6 per cent q-o-q in dollar terms,” ICICI Securities said in its report.
It added that in rupee terms, the revenue is expected to increase 3.8 per cent q-o-q aided by rupee depreciation. EBIT (earnings before interest and tax) margins are expected to decline 110 bps q-o-q to 23.9 per cent. This is due to wage revision in both onsite & offshore; increase in retention costs; and some increase in travel costs while we expect some tailwind in margins on rupee depreciation. PAT is expected to decline 0.8 per cent QoQ.
Motilal Oswal in its report said, “TCS remains best positioned to benefit from the long-term structural tailwinds in Tech Services and should see a relative pick-up in growth as the base effect and increased aggression aid it.”
During the March 2022 quarter, TCS had reported a consolidated net profit of Rs 9,926 crore, a jump of 7.35 per cent on a year-on-year basis. The net profit had stood at Rs 9,246 crore in the corresponding period of the previous financial year. The company’s revenue during January-March 2022 rose 15.75 per cent to Rs 50,591 crore, compared with Rs 43,705 crore in the year-ago period.
Its total expenditure also increased by 18.74 per cent to Rs 37,963 crore, against 31,971 a year ago, according to a BSE filing by the company. The company’s consolidated operating income increased 6.79 per cent to Rs 12,383 crore, against Rs 11,596 crore earlier.
On the IT sector, BPN Paribas in its note said, “In a weakening demand environment, we see large-scale companies, which are strategic vendors to their customers and have better ability to manage cost, to outperform. Accordingly, our top picks are Infosys and TCS. We are building in a gradual moderation in IT demand and accordingly cut our FY23-25E USD revenue growth by 0-4.5 per cent and margin estimates by 0-150 bp. We also raise our WACC assumptions to reflect the higher cost of equity. This results in our FY23-25E EPS cuts by 0-16 per cent and TP cuts by 5.9-42.1 per cent.”
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