The June 2024 (Q1FY25) quarter results of information technology (IT) majors, which have been going through a rough patch in recent times, indicate no major change in the demand environment amid the ongoing macro uncertainties. However, there are some signs of improvement, such as strong order books, successful client acquisitions, and positive commentary from the IT majors.
“The earnings of the IT sector so far have been mixed on revenue growth, but on the positive side, most companies indicated green shoots in their expenditures on discretionary projects as well as some large verticals like BFSI,” says Meeta Shetty, Fund Manager at Tata Asset Management.
In Q1FY25, IT behemoth Tata Consultancy Services (TCS) registered an 8.72% year-on-year (YoY) increase in its consolidated net profit of Rs 12,040 crore, while reporting a decline of 3.17% on a quarter-on-quarter (QoQ) basis. During this period, its gross sales grew 5.44% YoY and 2.24% QoQ to Rs 62,613 crore. Meanwhile, the North American market’s contribution to total revenues fell to 49.5% in the June quarter from 52% a year ago. TCS expects stronger growth in FY25 compared to FY24, driven by increased demand for emerging technologies such as Gen AI.
Ajit Mishra, SVP of Research at Religare Broking, says the results for IT majors in Q1FY25 show modest growth due to global economic uncertainties. “Revenue growth has slowed due to delayed client decisions and project postponements, particularly in the BFSI and retail sectors,” he says. However, “margins saw slight improvement owing to cost optimisation and high utilisation levels. Companies such as TCS and Infosys demonstrated resilience with strong deal pipelines and significant client wins,” he adds.
Meanwhile, Infosys recorded a profit of Rs 6,368 crore in Q1FY25—an increase of 7.11% YoY but a decline of 20% QoQ. Its top line increased by 3.6% YoY and QoQ. Meanwhile, after six quarters, revenue from BFSI delivered positive growth, driven by ramp-ups of large deals and the absence of a negative one-off expense during the quarter. Infosys also reported 34 large deal wins amounting to a total contract value of $4.1 billion. The company has revised its revenue growth forecast for FY25 to 3-4% from 1-3%, indicating better quarters going ahead, while maintaining operating margin guidance at 20-22%. Salil Parekh, CEO & MD of Infosys, in an exchange filing, expressed his satisfaction with the company’s performance at the beginning of FY25. He highlighted the strong and broad-based growth, operating margin expansion, robust large deals, and the highest-ever cash generation.
“The Infosys management has observed signs of improvement in client spending in segments like capital markets, mortgages, cards, and payments,” says Aniket Pande, AVP, Investments-Equity at DSP Mutual Fund, which will greatly benefit the company in the upcoming quarters.
Among the top 5 IT companies in terms of market capitalisation, HCL Technologies emerged as the only player that reported a double-digit rise in profit in Q1FY25. During the period, its net profit rose 20.45% YoY and 6.8% QoQ to Rs 4,257 crore. In terms of gross sales, the company posted a growth of 6.69% YoY but saw a decrease of 1.55% compared to the previous quarter.
According to brokerage firm Sharekhan, HCL Technologies delivered strong results in Q1 despite the seasonal softness, surpassing expectations in terms of both revenues and margins. It sees annualised sales and profit growth of 9.7% and 14%, respectively, for Infosys over FY24-26.
Wipro, another IT major, in Q1FY25 witnessed a growth of 4.63% YoY and 5.94% sequentially in profit, amounting to Rs 3,003 crore. Its revenue figure—which declined 3.80% YoY and 1.10% QoQ—was in stark contrast to the positive growth delivered by peers during the quarter. The Wipro management, according to ICICI Securities, has maintained that the demand environment was largely unchanged from Q4FY24 but indicated signs of improvement heading into Q2FY25. “We do not see that reflecting in the Q2 guidance of -1% to 1%,” ICICI Securities says. “Some silver linings from Q1 include robust Capco (acquired by Wipro in 2021) growth (3.4% QoQ), range-bound margin guidance for FY25 with an upward bias, and improving consumer business in North America.”
LTIMindtree, the fifth-largest IT player by market cap, reported a 1.54% YoY drop to Rs 1,133.80 crore in net profit in Q1FY25, while its sales grew 5.06% YoY to Rs 9,142.60 crore.
Mishra of Religare Broking says that going forward, “IT firms are concentrating on further cost optimisation, upskilling employees in emerging technologies, and expanding into new markets to sustain growth. Clients are cautious about discretionary spending in the short term. However, the long-term outlook remains positive, driven by digital transformation and strategic investments in innovation.”
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