Preview of the IT Sector's Q3 Results: The third quarter of FY25 earnings season will begin next week for a number of Indian IT businesses, including Tata Consultancy Services (TCS), Infosys, HCL Technologies, and Wipro.
On January 9, TCS, the biggest provider of IT services in India, will make its Q3 results public. The earnings for the October–December quarter will shortly be released by other IT companies as well.
With technology spending predicted to increase in 2025, the Indian IT sector is anticipated to quicken the initial stage of recovery observed in H1FY25.Beyond the US BFSI, which is still becoming stronger, the recovery seems to be spreading to other industrial verticals, such Hi-Tech, which is recovering earlier than expected.
However, seasonal furloughs are anticipated to have an influence on the IT sector's Q3 performance. Beyond seasonality, however, analysts anticipate that the outlook for technology spending will improve in CY25 as economic uncertainty gradually decreases.
During the December quarter of FY25, brokerage firm Motilal Oswal Financial Services anticipates that tier-2 IT companies would continue to grow at a faster rate than tier-1 organizations. The brokerage business believes that the most significant catalyst for the industry will occur after Q3FY25, when CY25 client budgets will be established and the extent of customer behavior shift will become more apparent.
Q3 Revenue Growth in the IT Sector
It is projected that Tier-I IT enterprises' constant currency (CC) revenue growth would vary from -1.0% to +3.7% over time. According to Motilal Oswal, Tier-II players' revenue is anticipated to increase by 0% to around 5% on a quarterly basis in CC terms.
On a sequential basis, CC revenue growth for IT majors TCS, Infosys, and HCL Technologies is anticipated to be 0.4%, 1.0%, and 3.7%. Mid-tier businesses ought to keep doing well. According to Motilal Oswal, Coforge and Persistent Systems should expand by 4.9% and 4.0%, respectively, while Mphasis and Cyient should rise by 0.2% and 2.3% on a quarterly basis.
For the IT equities it covers, the brokerage company anticipates cross-currency headwinds of 50 to 80 basis points (bps) on a sequential basis.
Q3 Margins for the IT Sector
The impact of rupee depreciation on IT companies' margins is anticipated to be slightly undermined by cross-currency headwinds during the October–December quarter. As a result, margins are probably going to remain steady notwithstanding wage impacts.
Motilal Oswal predicts that Infosys's typically weak H2 and furloughs would cause margin decreases, while LTIMindtree's salary raise will cause margin declines. A portion of this impact may be mitigated by cost optimization advantages and growth leverage in H2 for specific companies such as Coforge, L&T Technology Services, and Cyient.
"Given only modest increases in demand, we think a more measured hiring strategy and a strong USD versus INR should provide a margin cushion in FY26," stated Motilal Oswal.
Top IT firms are anticipated to perform as follows in Q3FY25:
Preview of TCS Q3 Results
The biggest provider of IT services in India, TCS, is predicted to expand at a modest rate of 0.4% QoQ CC. Furloughs are expected to have an effect on TCS's Q3 revenue, but client-specific issues might subside around that time.
Talent development, training, and operational efficiency might deliver a 40 basis point improvement in TCS's Q3 EBIT margin. The pipeline of deals should continue to be robust. Though manufacturing and the UK/Europe are poor, there is some upward movement in BFSI. According to Motilal Oswal, the outlook for the short-term demand and pricing environment, BFSI, and transaction wins are important metrics to track.
Preview of TCS Q3 Results
The biggest provider of IT services in India, TCS, is predicted to expand at a modest rate of 0.4% QoQ CC. Furloughs are expected to have an effect on TCS's Q3 revenue, but client-specific issues might subside around that time.
Talent development, training, and operational efficiency might deliver a 40 basis point improvement in TCS's Q3 EBIT margin. The pipeline of deals should continue to be robust. Though manufacturing and the UK/Europe are poor, there is some upward movement in BFSI. According to Motilal Oswal, the outlook for the short-term demand and pricing environment, BFSI, and transaction wins are important metrics to track.
Preview of Infosys Q3 Results
Due to the impact of seasonal furloughs, Infosys' Q3 revenue growth is anticipated to be 1.0% QoQ CC. Given that growth was partially front-ended, the brokerage company anticipates H2 to be weaker than H1. Furloughs are predicted to cause Infosys' operating margin to drop by 30 basis points, but this will be countered by tailwinds from Project Maximus, sub-con cost optimization, and price increases, which will keep the margin at 20.8%.
The brokerage firm does, however, anticipate that demand feedback will strengthen and transaction TCV will continue to be strong in Q3. It anticipates that flow business would rebound in CY25, supporting expansion. For the entire year, Infosys is anticipated to stick to its guidance of 3.75% to 4.5%.
Preview of HCL Technologies' Q3 Results
Due to seasonal tailwinds from product renewals, HCL Technologies is anticipated to report 3.7% QoQ CC increase. Despite the impact of 65–80 bps salary hikes and furloughs, its margin is predicted to improve by 50 bps QoQ, driven by a seasonally good quarter for the software division and operating leverage.
A rebound in high-tech discretionary spending is expected, even though ER&D and manufacturing may remain weak due to competition from the German car industry. Motilal Oswal stated, "We anticipate the company to maintain its FY25 revenue growth guidance of 3.5-5%."
Preview of Wipro Q3 Results
In Q3FY25, Wipro is predicted to experience a 1.0% QoQ CC fall in sales because to slowness in Europe, communications, and manufacturing, as well as furloughs and fewer working days. Wage increases are predicted to cause a 40 bps decline in IT service margins. The impact should be mitigated in 3Q by conventional levers like outsourcing and utilization as well as G&A minimization.
Motilal Oswal favors LTIMindtree among Tier-I players, while Coforge is its top choice among Tier-II players.
Due to seasonal tailwinds from product renewals, HCL Technologies is anticipated to report 3.7% QoQ CC increase. Despite the impact of 65–80 bps salary hikes and furloughs, its margin is predicted to improve by 50 bps QoQ, driven by a seasonally good quarter for the software division and operating leverage.
A rebound in high-tech discretionary spending is expected, even though ER&D and manufacturing may remain weak due to competition from the German car industry. Motilal Oswal stated, "We anticipate the company to maintain its FY25 revenue growth guidance of 3.5-5%."
Preview of Wipro Q3 Results
In Q3FY25, Wipro is predicted to experience a 1.0% QoQ CC fall in sales because to slowness in Europe, communications, and manufacturing, as well as furloughs and fewer working days. Wage increases are predicted to cause a 40 bps decline in IT service margins. The impact should be mitigated in 3Q by conventional levers like outsourcing and utilization as well as G&A minimization.
Motilal Oswal favors LTIMindtree among Tier-I players, while Coforge is its top choice among Tier-II players.
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