IT giants may see strong QoQ growth in October-December – Times of India

IT giants may see strong QoQ growth in October-December - Times of India


BENGALURU: IT companies, many of which will announce their December quarter numbers over the next two weeks, are expected to come out with strong sequential revenue growth figures. The December quarter normally is a weak one because of fewer working days.
Motilal Oswal expects tier-1 IT companies to deliver 3.2-4.8% sequential, or quarter-on-quarter (QoQ), constant currency revenue growth, and tier-2 players to deliver in a wider band of 3.6-7.1%. The brokerage firm expects a strong initial outlook for FY23, with companies maintaining their view of multi-year growth tailwinds on the back of cloud migration. Guidance for the last quarter of this fiscal is also expected to be positive on the back of continuing deal wins. “Strong growth in Q3 should again result in Infosys increasing its FY22 revenue growth guidance,” it said in a note.


Kotak Institutional Equities expects sequential growth rates between 2.6% and 6%. “Despite the impact of furloughs, we forecast extremely strong revenue growth led by high discretionary and continuing transformation spends. Wipro, Tech Mahindra and HCL Technologies will likely deliver 4.5% growth in constant currency. We forecast Infosys’s growth at 3.7% and TCS to deliver modest 2.6% QoQ growth. Mid-tier companies will likely deliver revenue growth rate at 5% to 6% in constant currency, healthy overall with YoY growth ranging 20-34%,” it said.
Investment firm Emkay said it expects Infosys to revise its FY22 revenue growth guidance to 17.5-18%, from the current 16.5-17.5%. Wipro, it said, is expected to guide for 2-4% constant currency QoQ revenue growth for the fourth quarter of the current fiscal.
Kotak Institutional Equities said mega-deal closures are down to a trickle as clients shun large consolidation deals. “The net result is a weak TCV (total contract value) number. A weak TCV number need not translate into weak revenue growth. The fact is that the market is buoyant with high velocity of continuing transformation deals that will take a few years to achieve but broken down into smaller packets.”
It expects a 22-25% voluntary attrition for Bengaluru-based companies and marginally lower for others. Backfilling of attrition, it said, will typically cost more and will be either through use of subcontractors (that cost at least 30% more than own employees), and/or through lateral hires (that cost at least 30% higher). “Either ways, expect margin headwind on a quarterly basis even if the company does not have a wage revision that is due. Higher the attrition, higher the margin headwind. A few companies such as Infosys and Wipro may end with 24-25% attrition on trailing 12 months basis,” it said.


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