Earnings preview: Expect strong growth from Infy, TCS, Wipro in Q2

Big IT firms such as TCS, Infosys andWipro are expected to announce strong earnings for the July-September quarter, helped by a steep decline of the rupee

against the US dollar and improved demand for outsourcingservices, say analysts.

They also expect strong volume growth for companies,supported by the improving demand scenario.

“Volumes for the top 4 companies are expected to rise by2.5-4 per cent, organically. Margins are expected to improvequarter-on-quarter, largely on the back of rupee depreciation.This is despite salary increments (in select cases),” KotakSecurities Head of Private Client Group Research Dipen Shahsaid in a report.

[caption id=“attachment_1135429” align=“alignleft” width=“380”]  Infosys will kick-off the quarterly earnings seasons on October 11, followed by Tata Consultancy Services on October 15 and HCL Technologies on October 17. Wipro is yet to announce the date for second quarter financial results. Reuters[/caption]

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Infosys will kick-off the quarterly earnings seasons onOctober 11, followed by Tata Consultancy Services on October15 and HCL Technologies on October 17. Wipro is yet toannounce the date for second quarter financial results.

The July-September quarter has been volatile, with therupee depreciating about 11 per cent Q-o-Q against the dollar,on an average basis.

According to analysts, while 1 percent drop in exchangerate boosts operating margins of top exporters by over 30-35basis points, the extent of benefit depends upon thecompanies’ hedging policies.

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A report by Angel Broking said the revenue growth inrupee terms is expected to be in the range of 13.5-16.5 percent Q-o-Q for tier-I IT companies.

IDBI Capital said in its results preview: “We expectvolume growth to pick up in Q2 against the backdrop of modestacceleration in US economy along with improvement in decisionmaking cycle. We forecast 2.2-5 per cent US dollar revenuegrowth for Top-5 IT companies in Q2.”

Traditionally, Q2 is good for IT companies because of thestrong budget flush that happens before close of the annualcapex cycle by clients. IT companies are expected to witnessbudget flush from clients on discretionary, operational andcapital spending.

“For tier-II companies, we expect volume growth to bemodest at 2.0-5.5 per cent Q-o-Q…dollar revenue growth isexpected to be 1.5-5 per cent Q-o-Q,” Angel Broking said.

It added that with the rupee depreciating sharply againstthe dollar, IT companies are expected to deploy the gainstowards sales and marketing, mitigation of impact of theImmigration bill and investments in new service lines.

TCS is expected to lead the tier-I pack with 4.3 per centQ-o-Q dollar revenue growth, while Infosys is also likely tosee a good quarter with 4.1 per cent Q-o-Q revenue growth,Kotak Institutional Equities said in its quarterly technologyreport.

PTI