regular-article-logo Monday, 05 June 2023

Tech margins to take a hit in Q2

TCS will kick off earnings calendar on Monday as fears over a global recession get countered by analyst expectations of a resilient domestic economy

Our Special Correspondent Mumbai Published 10.10.22, 01:07 AM
Representational image.

Representational image. File picture

Tata Consultancy Services (TCS) will kick off the earnings calendar on Monday as fears over a global recession get countered by analyst expectations of a resilient domestic economy.

The mixed sentiments are likely to get reflected in corporate India’s scorecard with consumer goods, automobiles and banks outperforming sectors such as metals, cement, and oil and gas.


Though India’s IT services firms earn a significant portion of their revenues from overseas markets, analysts remain optimistic about their performance during the July-September quarter, despite their margins taking a hit due to wage hikes. The focus, however, will be on the management commentary on aspects such as new deal wins, hiring and attrition.

Brokerages are drawing comfort from Accenture’s revenue growth of 22 per cent for the fourth quarter that ended on August 31, 2022. According to analysts at Axis Securities, the IT services sector is expected to report resilient growth in the second quarter of this fiscal primarily led by the new large deal wins and a ramp-up of deals won in the previous three months despite likely macroeconomic challenges.

Axis forecasts revenue growth in the range of 2.5-9.5 per cent sequentially in dollar terms, while in rupee terms, it is expected to come between 2.4 per cent and 9.5 per cent.

Margins are, however, expected to contract 20–260 basis points, due to the wage hike, higher travel costs and higher onsite expenses, which it said will be partially offset by the weakening of the rupee.

The brokerage expects TCS to report 6.7 per cent growth in net profits at Rs 10,270 crore over the same period in the last fiscal, while revenues are projected to come at Rs 55,210 crore against Rs 46,867 crore a year ago, an increase of 17.8 per cent.

Infosys is forecast to report 10.8 per cent year-on-year growth in net profits at Rs 6,008 crore and 23.4 per cent rise in revenues to Rs 36,250 crore. Analysts at HDFC Securities expect the net profit of TCS to come in at Rs 10,048 crore and Infosys at Rs 5,678 crore.

However, other sectors that have strong exposure to overseas markets, may disappoint investors.

Motilal Oswal Financial Services has slashed its 2022- 23 Nifty EPS (earnings per share) estimate by 3 per cent to Rs 817 — against the earlier estimate of Rs 843 — driven by cuts in metals and oil and gas earnings.

Consumer staples are also expected to be a bright spot with observers feeling that Hindustan Unilever, ITC, Nestle, Britannia, and Titan reporting stable performance despite inflationary pressures. Analysts at Kotak Securities expect the net profits of HUL to come at Rs 2,434 crore, an 11 per cent rise over Rs 2,187 crore in the same period of the previous year.

Analysts said Reliance could see a softening of gross refining margins (GRMs) and it would be left to the retail and telecom businesses to lift the private sector giant during the quarter.

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