IT firms are set to report soft October-December results on account of fewer billing days in December.
The 1% gain in rupee against the dollar in the last quarter too would put pressure on their revenue growth.
Software firms, which earn mostly in dollars, are hurt by rising rupee as they get of the Indian currency when converted to dollars.
Rumit Dugar and Udit Garg, analysts with Religare Capital, said in a report on Thursday, “We expect a relatively soft Q3 for Indian IT with 2–3% quarter on quarter (qoq) dollar revenue growth from large players, with TCS at 3.1% dollar revenue growth, followed by HCL Technologies at 2.5%, Wipro at 2% and Infosys at 1.8%”
They expect margins to remain flat operationally, and rupee realisations to deviate slightly on case-specific basis.
“A flat rupee and seasonal softness are likely to keep margins rangebound. On other income, we expect limited translation gains. Overall, we build in earnings per share growth of 5%/8%/2.6%/1% qoq for Infosys/TCS/Wipro/HCLT. ”
However, all eyes will be on Infosys’s revising its yearly guidance.
“We expect Infosys to report a quarter of weak revenue growth with 1.4% c/c growth and 40 bps cross-currency benefits. Infosys will likely revise its full-year revenue growth guidance to at least 11.5%, building in a muted March quarter. Operating margins will likely expand 110 bps as benefits of aggressive cost-rationalisation measures begin to reflect in performance. The company will have to clearly communicate and deliver to assuage concerns of business impact from senior-level exits,” Kawaljeet Saluja, Rohit Chordia and Shyam M of Kotak Institutional Equities said.
In the last quarter, Infosys reported dollar revenue growth of 3.76% and raised its fiscal 2014 guidance to 9-10% from 6-10% earlier.
Wipro is also expected to guide for a steady Q4 $ revenue growth of 1-3% qoq. TCS and HCLT do not give out guidance.
Another analyst requesting anonymity said, “Mid-cap IT firms are also expected to be hit by furloughs and hiring in Q2, resulting in Q3 $ revenue growth pegged at 1-2.5%, with Mindtree leading the pack.”
“This will be led by healthy pick-up in spending seen in US and Europe – both geographies revenue contribution having grown by 16% in fiscal 2014 as compared with 10-11% in fiscal 2013.
Operating profit margins are expected to improve by about 100 bps yoy, Rahul Prithiani, director of Crisil Research, said.