RESULTS PREVIEW. IT majors likely to post modest growth in Q4

VENKATESH GANESHVARUN AGGARWAL Updated - January 20, 2018 at 08:24 AM.

All eyes mainly on companies’ guidance for the 2017 fiscal year

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With 2016 fiscal drawing to a close and the impact of Chennai floods behind it, IT companies are expected to post modest quarterly growth in the fourth quarter. However, all eyes would be on whether companies have shrugged off their sluggishness and look at a better growth in 2017.

As Infosys kicks off the earnings season on April 15, the industry would again look towards the company for commentary on its growth guidance for the 2017 fiscal and how steps taken by CEO Vishal Sikka is shaping the company going forward.

“We expect Infosys to issue industry-leading guidance in the range of 11-15 per cent,” said Sarabjit Kaur Nangra, IT Analyst at Angel Broking. Also, it is expected to continue its margin expansion (of 1.2 per cent) and might also look at this continuity going into the next fiscal, mainly aided by decline in attrition in the 2016 fiscal.

Forex impact

Apart from Infosys, investors will also be focussed on other large cap IT companies and their performance in the fourth quarter. Analysts that

BusinessLine spoke to estimated that revenue growth can range from 0.4-3 per cent in constant currencyterms. This is mainly due to the sharp appreciation of 5.9 per cent in the US dollar when compared to the British pound, explained Sandip Agarwal of Edelweiss.

“The US dollar has appreciated against GBP, and the forex impact should range between 40 bps and 70 bps; but a weak rupee remains a tailwind,” said Rumit Dugar, Director at Religare Capital Markets.

Further, the January-March quarter also saw the rupee gaining against the dollar to the tune of 2.3 per cent, which will aid exporters, in the form of expanded margins, analysts said. On Monday, the rupee closed at 66.47 to the dollar.

TCS, whose last few quarters have been choppy, is expected to post 1.2-2 per cent growth in constant currencyterms and end the year with a 7 per cent growth, lower than Infosys. While India's largest exporter does not give revenue guidance, Kaur expecting growth of 11 per cent in the next fiscal. For TCS, analysts expect margins to go up by 0.9 per cent.

Meanwhile Wipro, which has been lagging its peers for several years in terms of revenue growth, is expected to a post growth of 2.4–2.9 per cent and guide for 3-5 per cent for the first quarter of 2017. “We are keen to hear execution changes at Wipro,” said Agarwal.

IT analyst Urmil Shah of IDBI Capital said that he is looking forward to the roadmap laid out by the Abidali Neemuchwala and developments in energy and utilities segment.

HCL Tech is expected to post the strongest set of numbers in the large cap companies. The company acquired Volvo's external IT business. HCL Tech has been taking a slew of deals that involve re-badging onsite employees. This has been weighing on the company’s margin trajectory. However, led by currency tailwinds, we expect EBIDTA margins to expand by 45 bps QoQ,” said Madhu Babu from Mumbai-based Centrum Broking.

Deal renewals

Analysts expect HCL Tech to post 3 per cent revenue growth and going forward, an opportunity to tap into the large number of deals coming up for renewal.

“It has done well in this (deal renewal) business and we also expect EBIT margins to improve by 1 per cent,” said Nangra.

Published on April 12, 2016 17:04