The information technology (IT) sector is likely to surprise again with strong growth numbers in the just concluded quarter. During the Oct-Dec'20 quarter, IT companies registered a 6.6 per cent year-on-year growth in total income while their net profits grew nearly 25 per cent. In the previous quarter the top-line of these firms rose 1.8 per cent whereas the bottom-line shrank 2.2 per cent, year-on.
Experts believe, ramp-up of previously signed large deals, broad-based growth and tailwinds from cloud transformation would help IT sector post another stellar quarter. "We estimate revenue growth between 1.6-4.3 per cent quarter-on-quarter in constant currency (CC) for Tier-1 and 2-4.4 per cent q-o-q CC for Tier-2," said a Prabhudas Liladher report.
Strong deal win momentum continued even in fourth quarter. Deal wins were robust with increasing large deals announced in communication sector -- TCS deal wins with Three UK & VodafoneZiggo B.V, Wipro & TechM's deal wins with Telefonica Germany. Deal pipeline for Tier 2 companies also remains robust with large deal wins bagged by Mindtree (Knauf, Alfac) & LTI (Mutual Benefit Group (MBG), Komercni Banka), the report highlighted.
On the margins front, it likely to take a hit sequentially on account of salary hikes, promotions, bonuses and strong rupee. "EBITM may expand on a year-on-year basis for most of the companies, driven by low travel costs, tight cost control and operating efficiencies. We expect Infosys and HCL Tech to defend their FY21 margins and expect them to guide for FY22 EBITM in the range of 22-24 per cent and 20-21 per cent, respectively," said an Emkay Research report.
Cloud, digital transformation, automation, AI and cybersecurity continue to see healthy demand. "We expect Tier-I techs to report q-o-q growth of 2.2-3.9 per cent in Q4FY21 and 2.5-4.5 per cent for TierII techs in CC terms, maintaining strong revenue growth momentum from Q3FY21," the Emkay report added.