Tata Consultancy Services (TCS), country's largest software services firm, will kickstart the earnings season for the September quarter of financial year 2019/20 on Thursday. Coming in the backdrop of a mixed set of results in the June quarter, analysts don't expect Q2FY20 to be any different. In the IT sector, large-cap companies such as Infosys and TCS are expected to report steady growth, while midcap companies such as Tech Mahindra, HCL Tech and Mphasis are expected to stand out in Q2FY20.
A report by Edelweiss Securities estimates that the top five Indian IT players - TCS, Infosys, Tech Mahindra, HCL Tech and Wipro - will report organic revenue growth of 1.9-3.5 per cent quarter-on-quarter in constant currency (cc) terms. Revenue growth is expected to be mixed, driven largely by seasonal performance and client specific challenges. However, profitability is likely to remain a key concern for most companies. A report by Kotak Institutional Equities points out that Tier-I IT companies could see a sequential increase in EBIT margins by 50-190 basis points due to headwinds from lower visa cost and benefits from rupee depreciation. On a year-on-year basis, the margins could see a decline anywhere between 80-340 bps. Analysts expect lower profitability largely due to several factors such as continued increase in subcontracting costs and higher localisation costs coupled with enhanced investments in digital business and re-skilling.
A few companies could see the additional cost impact dud to initial costs when entering into large deals. Here is what to watch out from the management commentaries of IT companies: