IT Q4FY22 Preview: Steady quarter, EBIT margins to be lower QoQ
IT companies are expected to be see moderate revenue growth in Q4. Margins are anticipated to decline on a QoQ basis (except Coforge) due to continued elevated employee costs.
IT companies are expected to post CC growth of 2-5% for the quarter while EBIT margins are expected to decline 20-80 bps QoQ. We expect TCS, Infosys, Wipro to post constant currency (CC) revenue growth in the range of ~3.0-3.5% QoQ while HCL Tech is expected to post weakest growth of 2.0% QoQ. TechM, LTI, Mindtree are expected to report 5% CC growth. We expect ~30 bps margin decline for TCS, Infosys, Wipro for the quarter while margin decline would be higher at 80 bps QoQ for HCL Tech on account of a weak P&P performance. TechM, Mindtree, LTI are expected to post a margin decline of 50-80 bps QoQ.
Sequential growth in IT companies is expected to moderate in Q4 and is in line with the historical trend and implied Q4 numbers in a few companies where they have given annual revenue guidance. Underlying drivers remain robust as enterprises have seen increased IT spending, especially on the cloud transformation side. Growth is expected to be broad based across verticals while BFSI, retail, insurance continue to lead the growth. The companies are facing a talent crunch in the market. Hence, employee costs continue to be elevated in terms of higher backfilling costs and retention costs, which will impact margins for the quarter. Few tailwinds could be available, going forward, in terms of price hike, pyramid optimisation and lower subs costs, which are expected to support margins in the medium to long term.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.