After weak Infosys and TCS Q4 results, here’s what to expect from HCL Tech, Wipro

Tata Consultancy Services (TCS) and Infosys, which have missed street estimates in Q4FY23 amid global uncertainties, have set a subdued tone for the IT sector’s March quarter performance. Experts predict the next 1-2 quarters will be choppy for the industry but are hopeful of a subsequent recovery. Meanwhile, all eyes are on the forthcoming financial results of HCL Technologies and Wipro which are slated to announce their earnings on April 20 and April 27, respectively.

TCS Vs Infosys

According to Kotak Institutional Equities, TCS and Infosys’ earnings prints had two common factors which are deterioration in demand from North America with discretionary programs that were paused or cancelled and an inability to flex margin levers as near-term costs are sticky at the beginning of the slowdown.

Infosys, the second largest IT firm by sales, on April 13 (Thursday) reported a 7.8 per cent year-on-year (YoY) rise in consolidated net profit at Rs 6,128 crore for the March quarter compared with Rs 5,686 crore in the same quarter last year. Analysts were expecting a profit growth of 15 per cent. On the other hand, TCS on April 12 reported a 14.76 per cent YoY increase in consolidated profit at Rs 11,392 crore for the March quarter compared with Rs 9,926 crore in the corresponding quarter last year. Analysts were expecting profit growth in the 14-19 per cent range.

“Infosys and TCS reported QoQ revenue declines of 3.8 per cent and 0.8 per cent, respectively, in North America. The revenue decline in North America was across verticals on a sequential basis. The reasons for the decline were a pause in discretionary programs and even cancellations. After a slow start in January, projects were paused or cancelled in February and it continued in March. The banking crisis in the US regional and European banks in March 2023 induced greater caution and could impact the June 2023 quarter. We would not be surprised by a weak US performance across companies that are likely to report in the coming days,” Kotak Institutional Equities said in a report.

Nirmal Bang Securities gave a ‘Sell’ rating to TCS post Q4 results with a target price of Rs 2,638.

“After holding out an optimistic view on demand for North America, three months back, TCS’ 4QFY23 results (both revenue and margin) fell short of both internal as well as street expectations as clients pushed back discretionary spending across sectors in that geography as their financial health deteriorated,” brokerage Nirmal Bang Securities said in a report.

Shares of TCS traded 1.82 per cent down at Rs 3131.95 in the afternoon trade on April 17. On the other hand, Infosys was down nearly 11 per cent at Rs 1,240.10 at around the same time. Global financial firm JP Morgan downgraded Infosys to underweight and cut the target price to Rs 1,200.

What to expect from HCL Technologies and Wipro?

Shares of HCL Technologies have declined nearly 5 per cent during the past one year till April 13, while Wipro plunged 34 per cent during the same period. On the other hand, the benchmark BSE Sensex gained 4 per cent.

Brokerage IDBI Capital Markets expects flat revenue growth from Wipro in constant currency terms. An assessment done by the brokerage showed that softness in the consulting business, BFSI, tech and retail verticals is expected to result in overall muted growth. “We forecast EBIT margin to grow by 90 bps QoQ led by an uptick in utilization,” IDBI Capital Markets said. The brokerage sees 6.6 per cent QoQ and 5.4 per cent YoY growth in the net profit of Wipro in Q4. Revenue in dollar terms may grow 0.9 per cent and 3.7 per cent, respectively, during the quarter.

On the other hand, IDBI Capital Markets expects revenue growth for HCL Technologies (in CC) terms to decrease by 1 per cent QoQ with the cross-currency tailwind of 15 bps. This is mainly due to seasonal softness in product revenue.

“We expect EBIT margin to taper down by 99 bps QoQ mainly led by a decline in revenue growth,” the brokerage said.

Meanwhile, investors should zero in on the outlook for Q1FY24, the outlook for consulting business, commentary on the large deal wins, tech budgets, commentary on client mining and across verticals-especially BFSI, Consumer, Hi-Tech and manufacturing business units, attrition trends, M&A and capital allocation and outlook on any other macro challenges in the forthcoming financial results.

According to Motilal Oswal Financial Services, revenue growth for HCL Technologies and Wipro are likely to remain weak at 0.6 per cent and 0.5 per cent QoQ. “We expect HCL Technologies to report muted growth due to a seasonal drag in HCL Software and margin to decline 150 basis points QoQ largely due to a seasonal decline in HCL Software,” the brokerage said.

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