Q4 Preview: Deal Wins, Outlook To Buoy IT Firms As Growth Normalises
What’s expected from India’s top I.T. companies for the quarter ended March.
Revenue of India’s biggest software exporters are expected to rise for the third straight quarter as they continue their digital transformation towards a post-Covid world amid a second wave of the pandemic.
Analysts estimates compiled by Bloomberg expect aggregate revenue of the five information technology companies on the Nifty 50—Tata Consultancy Services Ltd., Infosys Ltd., HCL Technologies Ltd., Wipro Ltd., and Tech Mahindra Ltd.—to increase 2.74% sequentially in the quarter ended March. Net profit, however, is expected to decline 3% over the preceding three months.
That’s at the higher end of the range forecast by research firm CLSA which expects organic, constant currency revenue growth of 1.4-2.8% for India’s top five I.T. companies. “While this may appear soft after back-to-back quarters of nearly 4% average growth, it may get overlooked as order books likely remain healthy and management commentaries stay positive,” Pankaj Kapoor, analyst at the brokerage, wrote in his sectoral preview note.
Nomura is anticipating a 50-70-basis-point benefit from cross currencies. It also expects growth momentum in top-tier companies to continue, led by ramp-up of large deals. “We believe all companies will report a positive year-on-year constant currency revenue growth in Q4, with Infosys likely to lead with double-digit growth and Wipro to lag with flattish growth,” Rishit Parikh, analyst at the research firm, wrote.
The optimism stems from Accenture Plc.’s improved results for the second consecutive quarter. The company raised its FY21 revenue growth guidance to 6.5%-8.5% from 4-6% previously. Analysts had then said the American technology firm’s performance and second upward revision in revenue guidance will augur well for Indian peers.
Deal Pipeline
CLSA said although mega deal wins in the fourth quarter were fewer compared to the quarter ended December, the deal flow has remained “strong and concentrated” in the $50-500 million total contract value range.
“Traction on large deals has improved across players and pipeline continues to be healthy, though comments on conversion rates will be the key,” Nomura’s Parikh wrote.
Infosys has announced more deal wins than TCS, despite only disclosing deals larger than $50 million. “While significant large wins are likely to see revenue accretion only in Q2FY22, higher revenue accretion from smaller wins could lead to a better revenue performance,” Nitin Padmanabhan, analyst at Investec, wrote in his note.