Q3 result preview: IT firms expected to post muted revenue, subdued profit amid weak demand
Motilal Oswal Financial Servicespointed out the seasonality is likely to hurt revenue growth and margin performances of both tier-1 and tier-2 IT companies. "The industry has not witnessed any meaningful change in spending patterns, as discretionary spending continues to pause enterprises. Although sentiment has improved, it has not yet been reflected in actions," Motilal Oswal said.
Motilal Oswal expects its IT services coverage universe to report a median revenue growth of 0.7 per cent quarter-on-quarter (QoQ) and 2.5 per cent year-on-year (YoY) in Q3FY24. The brokerage firm expects the revenue growth of tier-1 companies to be in the range of -2.7 per cent to +4.5 per cent QoQ in CC (constant currency) terms. Revenue of tier-2 players is expected to grow to the tune of -4.4 per cent to +3 per cent QoQ in CC terms, according to the estimates of the brokerage firm.
"The adverse movement of major currencies (EUR/GBP: -1.2 per cent/-2 per cent) is anticipated to further slow down the reported growth," Motilal Oswal said. "The muted revenue growth and revised compensation (selective names) in 3Q are less likely to aid margin improvement. However, the weakening Indian rupee (INR) should act as a support.
We estimate a flat dollar revenue YoY, while INR EBIT (earnings before interest and taxes) and INR PAT (profit after tax) will decline 4 per cent and 2 per cent YoY, respectively, in Q3FY24," said Motilal Oswal. The brokerage firm expects the deal TCVs (total contract value) to moderate from the Q2 high base coupled with furloughs impact in Q3. Also Read: Infosys, Wipro and Tech Mahindra to witness revenue dip in Dec quarter: Kotak Institutional Equities Motilal Oswal prefers tier-1 over tier-2 companies and HCL Tech remains
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