Infosys may slice dollar revenue guidance

The September quarter may not spring big surprises in the information technology (IT) sector with performances of major players likely to be along expected lines.

That means Tata Consultancy Services (TCS), HCL Technologies and Cognizant may have continued to grow much faster than peers Infosys Technologies and Wipro in the quarter gone by.

“We expect a marketshare shift in favour of TCS, HCLT and Cognizant, which is likely to make these three firms more confident about growth prospects than others,” said Viju K George and Amit Sharma, analysts with JP Morgan, in a note on Friday.

They are expecting Infosys to cut full-year US dollar guidance by 2% due to a weaker rupee.

“Infy could reduce its dollar revenue growth guidance for this fiscal from 18-20% to 16-18% due to the greenback’s appreciation (negative cross-currency impact), and delays in decision-making,” they said.

The duo expects TCS to lead on sequential revenue growth with 5.5% followed by Infosys at 5% and HCLT at 4%. They believe Wipro is likely to continue its weak run by registering a 1% organic growth.

Srishti Anand, analyst with Angel Broking, differs slightly from them and believes HCL will lead the pack with a revenue growth at 6.1% in the second quarter. This, she said, would be thanks to strong hiring of freshers by the New Delhi-based tech firm in the quarter.    

According to Anand, TCS’s revenue will grow by 5.9%, Infosys’ by 4.8%, while Wipro’s would be around 2.1%.

On the margin front, George and Sharma expect Infosys to outdo rivals with a 200 basis points (bps) expansion on higher utilisation, weaker rupee and wage normalisation.

Largest IT services firm TCS’ margin would rise at a much lower rate of 50 bps due to “promotion-related wage increases” in the previous quarter.

The JP Morgan analysts estimate wages to impact TCS’s margin by 80 bps. They expect HCLT and Wipro’s IT services earnings before interest and taxes (EBIT) margins to decline about 150 bps due to wage inflation.

Anand is expecting a much sharper margin decline for HCL and Wipro at 200 bps and 300 bps, respectively.

“Besides the impact of wage increases, the full impact of the SAIC acquisition will be felt in this (September) quarter. SAIC was a margin-diluting acquisition, so I expect it to have an impact on Wipro’s margins,” said Anand.

One factor that stood out in the September quarter this year was depreciation of the rupee against dollar and cross-currency headwinds.

This is likely to swing margins of tech players based on how much of their revenue is dollar denominated. The quarter may also see IT services vendors reporting forex losses.

“Keep an eye on forex (hedging) losses due to the sharp Indian rupee depreciation and cross currency movements: We expect TCS’ hedging loss due to its larger hedged book to be Rs175 crore. Infosys and HCL should report much lower hedging losses due to their lower hedge book,” George and Sharma said.