Fourth-quarter growth for Infosys and Wipro is probably going to be flat

Despite reporting better-than-expected results and a 9% increase in its consolidated net profit for the fourth quarter, Tata Consultancy Services (TCS), a provider of IT services, is expected to post revenue degrowth of 0.1% sequentially in rupee terms, while Infosys, its peer, is expected to report only 0.3% quarter-over-quarter revenue growth.

According to Axis Securities, Infosys management is expected to provide revenue growth projection for FY25E of 4.5% to 6%. Additionally, since operating expenditures are expected to be lower, margins should increase somewhat.

On April 18, Infosys, the second-largest provider of IT services, will release its March 2024 quarter results, and on April 19, Wipro will report its profits. The brokerage anticipates that reduced onsite costs will lead to an increase in Wipro’s operating margins.

According to ICICI Securities, given a larger percentage of discretionary expenditure, Infosys may announce a 1.2% QoQ decline. It anticipates modest traction in BFSI (from transactions announced in Q4) and communication (build up from liberty deal). Sharekhan anticipates flat EBIT margins from Infosys. “Tech Mahindra, Infosys, and Wipro are expected to exhibit sequential weakness, with sequential degrowth of 1.3%/0.5% and 0.4% in CC terms,” the report said.

Infosys reported a 7.3% decline in net profit at Rs 6,106 crore in the third quarter, below street projections. It had changed its revenue projection for FY24 from 1-2.5% to 1.5-2% after making that revision during the September quarter. It maintained the operating margin range of 20–22% for FY24.

A quiet quarter with constant currency (CC) revenue growth of -1.3-1.6% q-o-q is projected from the majority of Tier-1 IT services businesses, according to Sharekhan, because of the persistence of weakness in discretionary spending and poorer revenue conversion.

Given its large exposure to consulting industry (12-14% of sales), experts suggest that Wipro, the IT giant, may be particularly hit, since it has the biggest exposure to BFSI among tier-I, at 32.7%.

In rupee terms, LTIMindtree is anticipated to achieve sequential revenue increase of 1.5%, although operating margins are anticipated to improve modestly by 30bps. Tech Mahindra is anticipated to see sequential increase of 0.7%.

Because of the robust demand for cutting-edge technologies such generative artificial intelligence (AI), machine learning, cloud transformation, and digital transformations, Axis Securities said that contract wins for the IT services industry will likely stay stable for the next quarter.