TCS, HCL to lead sequential topline growth

TCS, HCL to lead sequential topline growth

The financial results of Information Technology (IT) companies will be kick starting with Infosys on October 12 and analysts tracking the industry expect HCL Technologies and Tata Consultancy Services to lead sequential revenue growth performance.

This would be due to the companies benefiting from ramp ups in deals closed in the past two-three quarters, says a report by Bank of America Merrill Lynch.

"We expect Infy to reverse its 3 quarter trend of revenue disappointment with a 3.8 per cent Q-o-Q revenue growth. Expect revenue for Wipro towards the lower end of its guidance on continuing sluggish revenue momentum," analysts Mitali B Ghosh and Kunal Tayal wrote in the report.

The Indian IT sector has been ailing under anti-outsourcing rhetoric from the United States, the sector's biggest client.

 Offshore Insights CEO and Research Director Sudin Apte said that he doesn’t expect any dramatic shift in performance this quarter. However, next quarter would be slightly better and quicker decision making is likely to be seen from Q1 of fiscal 2014.

On Wipro going behind larger deals, Apte said, “That is their strategy and though that might affect their profitability, they are going behind larger clients without trying to close too many accounts.”

Infosys, which has been struggling to find rhythm in their revenues, is expected to have a better quarter (Q2) than their first quarter that ended on June 30, 2012.

"Infosys should have decent growth, though it would be lower than its peers," analyst at a Mumbai-based broking firm who did not wish to be named told Deccan Herald.

 "While we admit that Q2 fiscal 2013 will also be slightly weak for Infosys versus TCS and HCL Tech, we strongly believe that the wide performance gap will narrow down to a meager 1 per cent. We also expect Infosys to reiterate its 5 per cent growth guidance for fiscal 2013, with some positive bias for out-performance," Edelweiss Securities analysts Sandip Agarwal and Omkar Hadkar said in their client note.

 The BofAML report said that deal signings are expected to be strong at TCS while Infosys should re-iterate its 5 per cent Y-o-Y organic revenue growth guidance along with early indications of a pick-up in deal momentum.

The report also expects that Wipro is likely to indicate a pick-up in large deal wins, however, it is might disappoint on Q3 revenue guidance.

Analysts also believe that the impact of rupee depreciation on operating margins would not be unlikely to be sharp in this quarter.

"There would not be any material impact on margins this time," said the Mumbai-based analyst. TCS, which has the largest hedge book of $5,035 million, is followed by Infosys, which typically hedges for two quarters at $1,114 million.

Wage hike

Wake hike is also going to hit these companies like Wipro, HCL Tech and TCS. "We expect wage hike impact of 160bps each, on margins of Wipro (two months) and HCL Tech (staggered over two quarters), and a 60bps impact of investments in new deals and initiatives for TCS," the Edelweiss report explained.

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