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India’s IT services heavyweights delivered between 14-20% on-year growth in topline for December quarter, as they raised guard on global uncertainties and choppy verticals, but remained hopeful that costs as well as business considerations will drive tech demand.
The tech earnings season began with large IT companies—Tata Consultancy Services Ltd., Infosys Ltd., Wipro Ltd., and HCL Technologies Ltd.—declaring their Q3 report cards this week, amid analysts’ gloomy prognosis around a slowdown in advanced economies and fear of geopolitical flare-ups.
The industry leaders said they are keeping a close watch on the global economy and its cues.
Overall, the revenue growth band of the top-tier IT players was pegged at 14–20% for the third quarter of FY23, compared to the year-ago period. Seen sequentially, the topline growth for the large IT pack ranged between three percent and eight percent versus the previous September quarter.
Meanwhile, the December-quarter net profit of the top IT deck rose between 3% (Wipro) and 19% (HCL Tech) year-on-year, and about 4% (TCS) to 17% (HCL Tech) when computed on a sequential basis.
TCS’ overall revenue rose 19.1% to Rs 58,229 crore for the reporting quarter. The chief executive and managing director of India’s largest IT services company, Rajesh Gopinathan, said the firm is more confident about its North American and British operations, which account for two-thirds of its revenues, but there are short-term uncertainties, and it is Europe that needs closer monitoring as geopolitical tensions restrict clients from making IT spends.
TCS management talked of “slow” decision-making in Europe and said it is “fairly constructive” when it comes to markets like the U.S., although it is keeping a close watch on how things play out over the next couple of quarters.
The conversations with customers are much more balanced ones, “where they are equally positive as well as cautious, yielding opportunities for a mix of both cost and transformation deals.”
Chief Operating Officer N Ganapathy Subramaniam said the deal momentum and pipeline are looking good, and the overall situation on technology spending seems to be intact even in this environment.
Infosys posted a 20.2% year-on-year increase in consolidated revenue for the December quarter at Rs 38,318 crore and surprised many by hiking full year revenue guidance to 16–16.5%.
Infosys’ consolidated net profit rose to Rs 6,586 crore during October-December 2022 as against Rs 5,809 crore a year earlier, translating into a 13.4% increase. Sequentially, the net profit was 9.4% higher than in the September quarter.
The company raised its annual sales forecast on the strength of a strong deal pipeline, but in the same breath, it warned of “constraints” in certain verticals amid a slowing global economy.
Infosys called out mortgage, investment banking, telecom, and hi-tech, saying these segments were “more impacted, leading to delays in decision-making and uncertainty in spending.” The company was, however, quick to add that sectors like energy, utilities, and manufacturing continue to see traction.
Moreover, the concerns are more pronounced in Europe than in the U.S., the Bengaluru-based IT bellwether said.
“We see in the European markets, more concerns on what’s going on with the economy… and the U.S. market is also there, but relatively less so in the U.S. with respect to Europe. We will see how this plays out,” Infosys CEO Salil Parekh said during the Q3 results conference.
In its earnings roundup, smaller rival Wipro has talked of a potential slowdown in the retail sector in its earnings roundup. The management’s talking points also touched upon “a bit of a lag for conversion of bookings” and “a certain level of volatility from customers in particular sectors regarding discretionary spending.”
Wipro Ltd. on Friday reported a better-than-expected 2.8% rise in consolidated net profit for the December 2022 quarter to Rs 3,053 crore and exuded optimism about “strong” bookings for the fourth quarter despite global headwinds.
The company’s Q4 guidance, however, came below analysts’ expectations. Wipro said its IT services revenue is expected to grow in the range of -0.6% to 1% sequentially in constant currency in the quarter ending March 2023.
Wipro expects revenue from the IT services business for the full year to be in the range of 11.5–12% in constant currency terms.
The revenues of Wipro stood at Rs 23,229 crore in third quarter of FY23, 14.3% higher than the same period the previous year.
Noida-headquartered HCL Tech posted a 19% increase in the consolidated net income to Rs 4,096 crore for the just-ended third quarter.
Its consolidated revenue grew by 19.56% to Rs 26,700 crore during the reported quarter, from Rs 22,331 crore in the December 2021 quarter.
HCL Tech narrowed its current fiscal growth guidance of 13.5–14% for overall revenue in constant currency terms and margin to 18–18.5%.
“Looking ahead, we believe there is a near term impact to a few industries, specifically technology industry clients, as they optimise while they will end up as great growth opportunities in medium term with the right propositions.” C. Vijayakumar, CEO of HCL Tech, said
He added: “Looking ahead, we remain positive about our medium-term growth, with confidence generated by our good bookings and pipeline across every segment.”
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