Coronavirus Poses Risk To Revenue Of Indian IT Companies, Say Analysts

Revenue growth of Indian information technology companies may be at risk with the increasing number of coronavirus cases across developed countries, analysts said.

While some companies have revised their revenue estimates downwards, others suggested that a stronger dollar may help in countering the margin contraction.

Here’s how analysts expect India’s IT sector to fare amid the coronavirus outbreak:

JP Morgan

• Markets have priced in significant risk to revenue destruction.
• Market are ignoring earnings support from a weak rupee.
• See long-term gains from greater offshore adoption.
• See acceleration of digital transformation.
• Impact of revenue headwind to be cushioned by a weak rupee.
• Infosys Ltd. and Tata Consultancy Services Ltd. best placed to deal with worst-case scenarios.
• Infosys, TCS better than peers due to lower financial leverage, ability to drive delivery shifts.
• Tech Mahindra Ltd. most at risk.

Nomura

• See a significant impact on IT services’ demand if virus spreads aggressively.
• U.S. and Europe contribute 80-85 percent to IT sector’s revenues.
• See impact from delay in client travel to close new deals.
• Clients typically travel to company’s development centres to assess capabilities.
• See a delay in starting work on existing deals.
• See significant impact on travel, retail and manufacturing verticals.
• Little impact from China, South Korea and Iran as presence there is minimal.

Kotak Institutional Equities

• Cuts FY21 revenue growth estimates by 2-4 percent.
• Work-from-home measures, travel advisories to hamper work.
• Deterioration in health if clients to lead to spending controls.
• Technology budget allocations likely to be curtailed by clients.
• Fund allocation for new technology programs could get delayed.
• Large IT companies may weather current challenges better.
• Remain constructive on Infosys, HCL Technologies Ltd. and Tech Mahindra.

Also Read: India’s Services Economy Braces For A Hit From Coronavirus

Morgan Stanley

• Clients in travel and hospitality likely to cut spends.
• Mindtree Ltd. and Hexaware Technologies Ltd. have high exposure to travel vertical.
• Weakness in capital markets could impact HCL Technologies, Larsen & Toubro Infotech Ltd. and Tech Mahindra.
• Need to monitor commentary but most IT companies haven’t yet reported disruption.
• Deal conversions could take longer as spending challenges persist.