TCS, Infosys, HCL Technologies to announce Q2 results this week; here’s what you can expect

The country’s top three information technology majors—Tata Consultancy Services, Infosys and HCL Technologies—will announce their financial results for the September quarter this week. Market watchers believe that the IT sector is expected to deliver a soft quarter, although Q2 has historically been a seasonally strong quarter. 

According to Nuvama Institutional Equities, revenue growth is likely to be modest lower because of tepid discretionary spending and delays in the execution of deals. However, demand remains solid—likely to show up in strong deal flows yet again—which should translate to a strong recovery in the second half of FY24. The brokerage believes that TCS, Infosys, HCL Technologies and LTIMindtree are likely to report a growth of 0.5–1 per cent growth in terms of constant currency. 

On the other hand, HDFC Securities added that growth divergence is expected between companies, with tier-1 IT sequential growth ranging from -1.4 per cent to 2.2 per cent and mid-tier IT sequential growth ranging from 0.9 per cent to 3.8 per cent. An assessment by HDFC Securities further showed that TCS, slated to report its results on October 11, may report 2 per cent QoQ and 9.5 per cent YoY growth in net sales in rupee terms. Net profit of the IT major may grow 4.1 per cent QoQ and 10.5 per cent on YoY basis. 

It further added that Infosys will post 1.5 per cent QoQ and 5.4 per cent YoY growth in net sales in Q2FY24. It further expects 4.1 per cent QoQ and 2.7 per cent growth in net profit during the quarter. For HCL Technologies, HDFC Securities projected a 2.7 per cent QoQ and a 9.4 per cent YoY increase in net sales. On the other hand, it sees 3.8 per cent QoQ and 5.1 YoY growth in profit after sales. Infosys and HCL Technologies will announce their results on October 12. 

With a rally of 7.3 per cent, the BSE IT index outpaced the benchmark BSE Sensex (up 1.7 per cent) during the second quarter of FY24. 

Sharing its view on the outperformance, HDFC Securities in a report said, “The IT sector’s recent outperformance has been driven by valuation multiples rising by 10 per cent in the last three months and the valuation gap to Accenture narrowing (highly correlated), despite earnings estimates being cut by 5 per cent. We expect the sector’s revenue growth to recover to 9 per cent in FY25.” 

Kotak Institutional Equities expects a -0.6-0.8 per cent sequential CC revenue growth rate for tier-1 IT companies. “Continued rationalisation of discretionary programs, combined with extended timelines for the execution of existing ones, is leading to leakage of revenues and weak trends,” the brokerage said in a report. 

It further said that the weakness will be broad-based and amplified in banking, retail and telecom segments. The growth rate will moderate to -2.9-3.2 per cent on YoY comparison. On a sequential basis, it expects a 0.5-0.8 per cent CC growth rate for Infosys, HCL Technologies and TCS. 

“We expect a marginal decline in EBIT margin on YoY comparison (except for Tech Mahindra where the decline will be sharp) as the slowdown in growth rates and cut in discretionary programs, combined with increased costs such as travel and back-to-office expenses, hurt. Cost levers are yet to fully kick in. EBIT margin will be influenced by the wage revision cycle on a sequential basis. HCLT had deferred wage revision for junior levels by a quarter. We have not baked in wage revision for Infosys in our estimates,” Kotak Institutional Equities said. 

 

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