TCS, Infosys, Wipro Q3 results on Jan 12; here’s what brokerages have to say

Indian IT sector is set to post another quarter of strong growth despite cost pressure. Market watchers believe that increasing speed of digital transformation or shift to cloud, improving deal pipeline and investment in the hyperscalers or SaaS ecosystem are likely to support top line and bottom line.

With a rally of 10.49 per cent, the Nifty IT index outperformed the benchmark Nifty 50 index (down 1.50 per cent) in the third quarter. Shares of IT majors Infosys and Wipro gained 12.69 per cent and 12.81 per cent, respectively, during the October-December period. TCS declined 0.99 per cent to Rs 3,738.35 on December 31, 2021 from Rs 3775.55 on September 30, 2021. These companies are slated to announce their financial results on January 12, Wednesday.

Reliance Securities sees a continued strong revenue momentum on the back of deal ramp-ups, IT transformational spends and sustained deal closure activity across the sector. However, it expects rising pressure on EBITDA margin due to higher incentives for employees, wage hike to retain talent amid the high attrition, lower utilisation due to aggressive fresh hiring, and stable SG&A cost.

Here’s what brokerages expect from Q3 earnings of IT majors TCS, Infosys and Wipro:

TCS: HDFC Securities has an ‘Add’ rating on TCS with a price target of Rs 4,350. The brokerage believes that the IT behemoth is likely to post 16.20 per cent year-on-year (YoY) and 4.20 per cent quarter-on-quarter (QoQ) growth in net sales in Q3FY22. On the other hand, it sees a 16.40 per cent YoY and 5.20 per cent QoQ rise in adjusted profit after tax figure.

Reliance Securities believes that the revenue of TCS may grow 17 per cent YoY and 4.9 per cent on QoQ basis. However, it projected that net profit and EBITDA to grow 14.80 per cent and 12.50 per cent YoY, respectively.

Market watchers should zero in on deal commentary, the outlook of BFSI, retail and healthcare vertical and pricing trends in the third quarter results of TCS.

Infosys: An assessment by HDFC Securities showed that Infosys may post 20 per cent YoY and 5.10 per cent QoQ growth in the top line. On the other hand, the adjusted profit of the company may grow by 7.1 per cent YoY and 2.7 per cent QoQ during the quarter. The brokerage also has a ‘Buy’ rating on Infosys with a price target of Rs 2,100.

Reliance Securities also sees double-digit growth in topline for Infosys in Q3FY22. It sees 20.50 per cent YoY and 5.50 per cent QoQ rise in revenue. The brokerage also projected an 18.20 per cent and 12.30 per cent YoY rise in net profit and EBIT, respectively.

“We expect Infosys to raise FY22 revenue growth guidance to 17-17.5 per cent (against earlier 16.5-17.5 per cent) and reiterate FY22 EBIT margin in the range of 22-25 per cent,” Reliance Securities said.

Market participants should watch updates related to large deal activity, the outlook of BFSI vertical, attrition trend and capital allocation policy.

Wipro: The company may post 37.20 per cent YoY and 4.5 per cent QoQ growth in the IT services revenue, according to Reliance Securities. It also sees a 22.10 per cent YoY and 4.3 per cent QoQ increase in net income. Reliance Securities expects that Wipro may guide Q4FY22 revenue growth of 2.5-3.5 per cent (QoQ).

Investors should watch large deal win momentum, pricing trends and outlook of BFSI and retail vertical in the quarterly results of Wipro.

YES Securities projected 30.30 per cent YoY and 3.80 per cent QoQ growth in revenue. However, it sees a 3.6 per cent YoY and 4.9 per cent QoQ rise in profit after tax. “Q4FY22 guidance, commentary on merger and acquisition and large deal wins would be key things to watch out for,” YES Securities said.

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