'Weakest Q1 in at least 10 years': TCS, Infosys Q1 results in next one week; who will lead growth? 

Tata Consultancy Services Ltd (TCS) and Infosys Ltd, the two largest IT firms in India, are set to declare their June quarter results in the next one week. On a sequential basis, analysts see Infosys faring better between the two across fronts, be it constant currency (CC) sales, dollar revenue, Ebit margin or profit terms. On YoY basis though, it is TCS that is seen leading revenue, profit and margin expansion.

The quarter gone by saw wage revisions by TCS, which may influence bottom line and margins for the IT major sequentially. In the case of Infosys, which did no see any wage hike during the quarter, gains from its cost-benefit programs could get offset by visa and other seasonal costs, analysts warned.

MOFSL estimated TCS Q1 profit at Rs 12,140 crore, down 2.9 per cent QoQ but up 9.2 per cent YoY. This is against Infosys Q1 profit estimate of Rs 6,310 crore, which is 3.8 per cent higher on QoQ basis and 6.2 per cent YoY. 

In case of Ebit margin, estimated TCS margin at 24.5 per cent are seen contracting 150 basis points sequentially but expanding 130 basis points YoY. Infosys, on the other hand, is seen clocking operating margin of 20.4 per cent, up 30 basis points QoQ but down 40 basis points YoY.  

In its preview note, Nuvama said Infosys should lead the IT pack with CC QoQ growth of 1.9–5 per cent CC. TCS, TechM, Mphasis, and Coforge are likely to report modest growth of 0.4–1.4 per cent, it said. 

In terms of deal wins, ICICI Securities said TCV for TCS should be slightly modest in Q1FY25 on a sequential basis, as no major deal announcements were made in Q1 and also, the number of deals announced were also lower against Q4. Deal pipeline is expected to be driven by cost optimisation and vendor consolidation deals, it said on TCS.

On the other hand, Infosys' deal pipeline was strong and deals wins in the previous quarter were ramping up on expected lines. The number of key deals also doubled against Q4FY24. 

Infosys order wins are seen in the range of $5 billion. For TCS, the range could be $10-12 billion, analysts said.

MOFSL in its preview note said the domestic IT sector is on track for one of the weakest first quarters in at least 10 years. "The situation, though slightly better, is eerily similar to what we witnessed in 1HFY24," it said.

"We see the bearishness amongst investors for the IT Services sector akin to that last seen in 2016-17," said Kumar Rakesh, Analyst – IT & Auto at BNP Paribas India. Among largecaps, this analyst wishes to play the demand recovery cycle with Infosys, where expectations are modest, valuations are reasonable, and GenAI and discretionary demand could be a catalyst.

TCS would report its quarterly earnings on July 11. Infosys would be reporting its results on July 18.