The Information Technology (IT) sector remains a strong sector amid the COVID-19 pandemic, unaffected by the recent Omicron wave and the ongoing Russo-Ukraine war. However, the industry’s performance in January-March 2022 is set to remain soft amidst several adversities and according to analysts, TCS is expected to grow at 3.0-3.5 per cent in constant currency revenue on a quarterly basis.
The sector recently saw a strong performance on the back of rapid adoption of digital technologies and migration to cloud-based solutions across sectors. Also, the work from home (WFH) model is serving the IT sector well, which is now planning to implement the hybrid work model.
Analysts at ICICI Securities said in a report that they expect TCS to see a 2.7-3.2 per cent growth in dollar revenue on a quarterly basis. “There will be cross-currency headwinds in the range of 20-50 bps for (major) companies …, which will negatively impact dollar revenue growth.”
The constant currency revenue growth from Tata Consultancy Services (TCS) is expected to be in the range of 3.0-3.5 per cent on a quarterly basis, the report said. The company’s revenue is expected to grow 15.4 per cent y-o-y, while EBITDA (earnings before interest, taxes, depreciation and amortization) is expected to grow 7.5 per cent y-o-y. The Tata group company can report a profit after tax (PAT) of eight per cent on an annual basis.
However, Yes Securities in its report said that leading IT companies like TCS, Infosys and HCL Tech are expected to report higher sequential growth as compared to Tier-1 companies like LTI and Coforge.
It expects TCS to post 15.7 per cent year-on-year revenue growth, while the company’s PAT growth is likely to be 9.1 per cent year-on-year.
The Yes Securities report said it expects broadly stable margins, with attrition almost peaking. “It will be important to focus on management’s commentary on the outlook on the development environment.”
“Revenue growth momentum should continue in Q4, while margins will be impacted due to higher manpower expenditure. Continued improvement in BFSI, healthcare and retail demand, pick-up in digital technologies, pick-up in deals,” said an ICICI Securities report. TCS is expected to post 3 per cent QoQ growth in constant currency.
It added that cross-currency headwinds could lead to revenue growth of 2.7 per cent QoQ in dollar terms; While in rupee terms, revenue is expected to grow at 3.1 per cent QoQ. “EBIT margin is expected to fall by 20 bps QoQ to 24.8% due to continued increase in employee costs amid higher job losses. PAT is expected to improve at 2.3% QoQ. Investor interest: i) Corporate restructuring planned for FY23 ii) Opening of FY23 Demand Outlook / Attrition / Travel.”
The report said, “Growth of Indian IT companies is expected to moderate in Q4FY22 as seen in Q4 quarters historically. Margins are expected to be impacted due to rising employee expenses. The demand environment remained strong on sustained transaction momentum led by sectors such as BFSI, insurance, etc.”
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