Q2 results: IT majors set to see robust numbers after two quarters of Covid-led disruptions

Venkatesh Ganesh Mumbai October 5 | Updated on October 05, 2020

Analysts see growth in order books, revenues and margins for TCS, Infosys, Wipro and HCL

IT companies are expected to post steady Q2 FY21 numbers, signalling the beginning of a return to growth after a couple of Covid-disrupted quarters.

Also read: TCS m-cap surpasses ₹10-lakh-crore mark

As TCS looks to kick off the earnings season on October 7, analysts that BusinessLine spoke to said the order books are expected to grow, along with revenues and margin expansion. Among the large caps, 1.7-3.9 per cent sequential growth in revenue is forecast, according to Urmil Shah, Research Analyst and V-P, IDBI Capital.

This is largely due to factors such as higher adoption of technology in developed markets and cross-currency benefits. Revenue growth will be led by a strong spurt across all industries, verticals and geographies, said analysts.

Also read: IT firms see jump in Europe business in Q1

“The spurt in revenue growth will be led by digital and cloud as the underlying catalysts. Moreover, segments beaten down by the pandemic — such as retail, transportation and engineering R&D — will make a strong bounce-back on a low base,” said Sandeep Agarwal, Analyst, Edelweiss Research. He added that cross currency benefits of 20-185 basis points are expected to aid companies in Q2.

Forecast for TCS, Infosys

On the back of these tailwinds, TCS is expected to post revenue growth of 3 per cent on a quarterly basis. India’s largest IT company is also expected to increase its margins by 200 basis points, or 2 per cent, to 25.5 per cent in the September quarter. It is seen to post an almost 11 per cent growth in net profit. In Q1, TCS had reported a dip in profits as a result of Covid-19.

“In terms of deal wins, we expect TCS to post $5 billion in the September-ended quarter,” said IDBI Capital’s Shah.

Analysts further expect Infosys to increase the lower end of its guidance. In Q1, the company had set constant currency revenue guidance for FY21 in the range of 0-2 per cent. Shah now expects the company to guide in the range of 1-2 per cent.

Infosys’ margins are expected to go up by 20 basis points, or 0.2 per cent, to 22.8 per cent and its profits are seen to go up 7 per cent in the September quarter.

Where Wipro, HCL stand

Wipro is expected to post 1.6 per cent revenue growth and its EBIT margins are expected to marginally improve by 15 basis points, or 0.15 per cent. “This is due to improvement in utilisation and operational efficiencies offsetting the impact of rupee appreciation,” said Shah. The company’s profits are expected to rise 5.6 per cent.

HCL Tech is expected to grow its revenues by 5.1 per cent and its EBIT margins are expected to improve by 30 basis points on a quarterly basis. This margin gain will be aided by cross-currency headwinds. HCL’s profits are expected to rise 3 per cent.

Published on October 05, 2020

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