IT earnings: IT sector’s challenges persist in Q4; guidance for FY25 in focus

Share via:

HCLTech and Tata Consultancy Services (TCS) will likely pull ahead of their top-tier software rivals as the $250-billion Indian outsourcing industry starts publishing next week the fourth-quarter earnings, which investors will comb for commentary on business outlook in FY25 that many expect would see higher discretionary expenses by US and European companies.

The start to the US rate easing cycle later this year should aid IT budgets in the primary revenue-generating market for Indian technology, while strong deal wins in recent quarters would translate into revenue growth acceleration in FY25.

Elevate Your Tech Prowess with High-Value Skill Courses

Offering College Course Website
Indian School of Business ISB Product Management Visit
MIT MIT Technology Leadership and Innovation Visit
IIT Delhi IITD Certificate Programme in Data Science & Machine Learning Visit

“Recovery of furloughs and ramp-up of recently won large deals should aid revenue growth. Accordingly, for most of our coverage companies, we see YoY revenue growth to start recovering from 4QFY24,” BNP Paribas analyst Kumar Rakesh said in a report. “That said, we note that some firms continue to see the impact of project ramp-downs… We think FY25 guidance will be a critical near-term catalyst, along with US macro-economic indicators in the coming months.”

For the likes of TCS, Infosys, HCLTech and Wipro, it expects 4QFY24 constant currency (CC) organic revenue growth at -1% to +1%, while mid- and small-caps could report 1-3% QoQ (quarter on quarter) USD organic revenue growth.

While the industry’s struggle with constrained discretionary demand is likely to continue over the next 3-4 months, rising PMIs, benign inflation prints and a start to the rate easing cycle should allow for a continuation of the Goldilocks phase, BNP Paribas said.

‘Bottomed Out’

Discover the stories of your interest

“We think the industry has bottomed out. Signs of improvement in the global economy, macro indicators and strong deal wins in recent quarters should translate into revenue growth acceleration in FY25, in our view,” it added.

PMI is purchasing managers’ index, an economic indicator of trends in the manufacturing and services sector.

To be sure, Q3 and partly Q4 of a fiscal year are seasonally weak quarters. In Q3FY24 ending December, most IT earnings were hit by muted revenues and profit numbers. Infosys trimmed its FY24 revenue guidance, while Wipro had modest estimates.

Among global technology majors, Accenture, Cognizant and Capgemini lowered or slowed their FY24 (ending in August) guidance due to continued pressure on clients’ IT budgets, although Accenture pointed to likely stronger exit driven by higher contribution of acquisitions and large deal wins.

Sumit Pokharna, vice president – fundamental research – IT, Kotak Securities, said dollar revenue growth will benefit from modest cross-currency tailwinds of 2-10 basis points (bps) across larger peers and 5-43 bps at mid-tier companies.

One bp is a hundredth of a percentage point.

“TCS and HCLT will outperform on growth at 0.2-1.7% QoQ in CC terms… Infosys’ March quarter is seasonally weak, with Q4FY24 being no different—we forecast a 1.5% sequential revenue decline. Wipro, LTIMindtree and Tech Mahindra should also report a sequential revenue decline,” Pokharna added.

Size Matters
Meanwhile, a Jefferies report said: “We expect aggregate revenue growth for our coverage to remain subdued at 0.3% QoQ cc in 4QFY24 as continued pressure on discretionary IT spends limit the pace of recovery from furloughs. We expect only two firms in our coverage – TCS (+1.4% QoQcc) and Coforge (+2% QoQcc) – to deliver QoQcc revenue growth, led by deal ramp ups.”

Most analysts expect margins overall to be steady on the back of furlough impact reversal from 3QFY24, pyramid restructuring, higher offshoring, higher utilization and driving efficiencies in discretionary expenses. TCS, Infosys and Tech Mahindra may see improvement while HCLTech, Wipro and LTIMindtree may see modest or weaker margins.

In February, industry body Nasscom said India’s technology industry has surpassed $250 billion in revenue and it is expected to grow at a slower pace of 3.8% to reach $253.9 billion for FY24, from an 8.1% growth of $244.6 billion in FY23.


Source link

Disclaimer

We strive to uphold the highest ethical standards in all of our reporting and coverage. We StartupNews.fyi want to be transparent with our readers about any potential conflicts of interest that may arise in our work. It’s possible that some of the investors we feature may have connections to other businesses, including competitors or companies we write about. However, we want to assure our readers that this will not have any impact on the integrity or impartiality of our reporting. We are committed to delivering accurate, unbiased news and information to our audience, and we will continue to uphold our ethics and principles in all of our work. Thank you for your trust and support.

Popular

More Like this

IT earnings: IT sector’s challenges persist in Q4; guidance for FY25 in focus

HCLTech and Tata Consultancy Services (TCS) will likely pull ahead of their top-tier software rivals as the $250-billion Indian outsourcing industry starts publishing next week the fourth-quarter earnings, which investors will comb for commentary on business outlook in FY25 that many expect would see higher discretionary expenses by US and European companies.

The start to the US rate easing cycle later this year should aid IT budgets in the primary revenue-generating market for Indian technology, while strong deal wins in recent quarters would translate into revenue growth acceleration in FY25.

Elevate Your Tech Prowess with High-Value Skill Courses

Offering College Course Website
Indian School of Business ISB Product Management Visit
MIT MIT Technology Leadership and Innovation Visit
IIT Delhi IITD Certificate Programme in Data Science & Machine Learning Visit

“Recovery of furloughs and ramp-up of recently won large deals should aid revenue growth. Accordingly, for most of our coverage companies, we see YoY revenue growth to start recovering from 4QFY24,” BNP Paribas analyst Kumar Rakesh said in a report. “That said, we note that some firms continue to see the impact of project ramp-downs… We think FY25 guidance will be a critical near-term catalyst, along with US macro-economic indicators in the coming months.”

For the likes of TCS, Infosys, HCLTech and Wipro, it expects 4QFY24 constant currency (CC) organic revenue growth at -1% to +1%, while mid- and small-caps could report 1-3% QoQ (quarter on quarter) USD organic revenue growth.

While the industry’s struggle with constrained discretionary demand is likely to continue over the next 3-4 months, rising PMIs, benign inflation prints and a start to the rate easing cycle should allow for a continuation of the Goldilocks phase, BNP Paribas said.

‘Bottomed Out’

Discover the stories of your interest

“We think the industry has bottomed out. Signs of improvement in the global economy, macro indicators and strong deal wins in recent quarters should translate into revenue growth acceleration in FY25, in our view,” it added.

PMI is purchasing managers’ index, an economic indicator of trends in the manufacturing and services sector.

To be sure, Q3 and partly Q4 of a fiscal year are seasonally weak quarters. In Q3FY24 ending December, most IT earnings were hit by muted revenues and profit numbers. Infosys trimmed its FY24 revenue guidance, while Wipro had modest estimates.

Among global technology majors, Accenture, Cognizant and Capgemini lowered or slowed their FY24 (ending in August) guidance due to continued pressure on clients’ IT budgets, although Accenture pointed to likely stronger exit driven by higher contribution of acquisitions and large deal wins.

Sumit Pokharna, vice president – fundamental research – IT, Kotak Securities, said dollar revenue growth will benefit from modest cross-currency tailwinds of 2-10 basis points (bps) across larger peers and 5-43 bps at mid-tier companies.

One bp is a hundredth of a percentage point.

“TCS and HCLT will outperform on growth at 0.2-1.7% QoQ in CC terms… Infosys’ March quarter is seasonally weak, with Q4FY24 being no different—we forecast a 1.5% sequential revenue decline. Wipro, LTIMindtree and Tech Mahindra should also report a sequential revenue decline,” Pokharna added.

Size Matters
Meanwhile, a Jefferies report said: “We expect aggregate revenue growth for our coverage to remain subdued at 0.3% QoQ cc in 4QFY24 as continued pressure on discretionary IT spends limit the pace of recovery from furloughs. We expect only two firms in our coverage – TCS (+1.4% QoQcc) and Coforge (+2% QoQcc) – to deliver QoQcc revenue growth, led by deal ramp ups.”

Most analysts expect margins overall to be steady on the back of furlough impact reversal from 3QFY24, pyramid restructuring, higher offshoring, higher utilization and driving efficiencies in discretionary expenses. TCS, Infosys and Tech Mahindra may see improvement while HCLTech, Wipro and LTIMindtree may see modest or weaker margins.

In February, industry body Nasscom said India’s technology industry has surpassed $250 billion in revenue and it is expected to grow at a slower pace of 3.8% to reach $253.9 billion for FY24, from an 8.1% growth of $244.6 billion in FY23.


Source link

Disclaimer

We strive to uphold the highest ethical standards in all of our reporting and coverage. We StartupNews.fyi want to be transparent with our readers about any potential conflicts of interest that may arise in our work. It’s possible that some of the investors we feature may have connections to other businesses, including competitors or companies we write about. However, we want to assure our readers that this will not have any impact on the integrity or impartiality of our reporting. We are committed to delivering accurate, unbiased news and information to our audience, and we will continue to uphold our ethics and principles in all of our work. Thank you for your trust and support.

Website Upgradation is going on for any glitch kindly connect at office@startupnews.fyi

More like this

More Than 10.8 Cr Users On Reliance Jio’s 5G...

SUMMARY The company said that the 5G users account...

GRID discounts disassembled iPhone 4 frame to $99, more...

Our friends at GRID Studio are running an...

‘Send now, pay later’ startup Pomelo lands $35M Series...

Pomelo, a startup that combines international money transfer...

Popular

Upcoming Events

Startup Information that matters. Get in your inbox Daily!