As TCS kicks off the results season on January 12, the market and the industry will be keenly watching whether the underlying trends panning out in the seasonally weak third quarter (as a result of furloughs and holidays) continues to hang like Damocles’ sword over IT companies, especially in the backdrop of changes — both political and in the outsourcing business.

Analysts that BusinessLine spoke to pointed out that TCS is expected to post 0.1 per cent QoQ revenue growth (in USD terms) and 1.3 per cent in constant currency terms. “TCS may face headwinds in the form of a significant cross currency impact, a seasonally weak quarter and we don’t see immediate relief in its insurance/Japan businesses,” said Sandeep Agarwal, analyst at Edelweiss Securities.

A day after TCS reports its quarterly numbers, Infosys will come out with its performance and its management commentary on H-1B visas.

RBS deal cancellation

Analysts opine that a contract cancellation from RBS, cross currency headwinds, and increased commoditisation of its traditional business are some of the factors for muted growth.

Infosys is expected to post 0.8 per cent quarterly growth (in constant currency terms) in dollar revenues.

“We expect currency headwinds of 70 basis points (0.7 per cent),” said Agarwal.

Other brokerages, such as Kotal Institutional Equities, believe that Infy’s EBIT margins will decline due to lower employee utilisation (as a result of the RBS project cancellation).

The silver lining, according to Agarwal, could be the efforts taken over the last couple of years in the area of IT infrastructure management, in which projects worth $120-150 billion are coming up for renewal by 2020.

For India’s third-largest software exporter Wipro, analysts point out that the performance will continue to be sluggish. It is expected to post 0.1 per cent growth in dollar terms and 1–1.2 per cent QoQ growth in constant currency terms, largely in line with its projections. “We believe Wipro’s turnaround is still some time away,” said Agarwal.

Analysts expect organic constant currency revenue growth of 0.4 per cent and a growth guidance in the range of 0-2 per cent in the March 2017 quarter.

Kotak estimates a cross-currency headwind of 115 basis points, after including $15 million in revenue attributable to the Appirio acquisition (one-month contribution).

HCL Tech is expected to post 2.8 per cent dollar revenue growth and 3.7 per cent constant currency revenue growth. However, its EBITDA margin is expected to be flat due to inorganic revenues and some impact of cross currency. “We expect the company to reinstate its revenue and margin guidance in constant currency terms, while adjustment to USD guidance, to the extent of cross currency, is likely,” analysts said.

Currency impact

The fluctuating currency is expected to play spoilsport for all the top IT exporters. According to Ashish Chopra, analyst at Motilal Oswal, the strengthening of the dollar against other major global currencies, such as the euro, Japanese yen, British pound and Australian dollar, in the range of 1–10 per cent in the October-December quarter, will impact growth in the range of – (minus) 2.1 to 1.7 per cent on a quarterly basis.

For HCL, cross-currency headwinds could be 120 basis points or 1.2 per cent.

Related Topics