Infosys, India’s second largest IT services company, reported Q1 results on Thursday. Revenue rose 1.31% QoQ to Rs 37,933 cr. Profit after tax came at 3.1% at Rs 5,945 cr . The management also gave a grim outlook for the next few quarters.
Coforge Ltd reported rise in revenue of 2.4% to Rs 2,221 cr in Q1. PAT came at Rs 165.3 cr. Whereas, LTI Mindtree reported 14% YoY rise in revenues to Rs 8,702 cr while it stayed flat QoQ. Consolidated net profit came at Rs 1,151.5 cr, a 4% rise YoY and a little over 3% growth QoQ.
Majority of the IT firms have also guided for a cautious outlook. As for Infosys, firm has shared an expected growth of 1-3% in constant currency terms. The management believe delays in decision-making by clients and spending cuts as reasons for the sharp downward revision.
The muted forecast was joined by Tata Consultancy Services had a flat June quarter, said revenue is unlikely to return in a hurry with double-digit growth out of the question. CEO Krithi Krithivasan said that there is a fear of a flat Q2FY24 while the rise in spending of clients is still cautious to predict.
Similarly, Infosys’ smaller peers, HCL Technologies Ltd. and Wipro Ltd., have guided for 6-8% revenue growth in FY24 and -2% to 1% in Q2 FY24, respectively, underscoring the incoming pain from macro headwinds in the US market.
– CLIENTS FOCUS ON EFFICIENCY, FAT-CUTTING, FASTER ROIs
IT firms have signaled that majority of clients have opted for more efficiency moderation projects in the past 1 year. While this augurs well for clients, it reduces project cost for IT vendor.
And secondly, the slowdown in overall global economic pave way for either lowering dividend payout for cash preservation or minimized spending.
–TOP VENDORS SHARE GROWING OF SMALL DEALS; CLIENT COUNT INCREASE FOR LOWER-END VENDORS
– TCS = Witnessing large number of smaller deals of up to $100M
– Infosys = Net client additions fell from 115 in Q4 ’23 to 99 in Q1 ’24; Active client base grew by 9 to 1,883
– HCL Technologies = Clients $100 Mn+ up by 3 YoY, $50 Mn+ up by 6 YoY
– Wipro = Added 2 large contracts >$100 million; Reduced number of active customers by 35 to 1,444. 65 new clients added during Q1FY24
– LTI Mindtree = Added 19 more clients to take the overall client count to 723
| EBIT MARGINS % | CONSTANT CURRENCY GROWTH AHEAD % | NO. OF EMPLOYEE ADDED | |
| TCS | 23.2 | – | 523 |
| INFOSYS | 20.8 | 1-3.5 | -7000 |
| HCL TECH | 16.9 | 6.8 | -417 |
| WIPRO | 15.14 | -2 TO 1 | -8812 |
| LTIMINDTREE | 16.67 | – | -1800 |
| COFORGE | 10 | 13-16 | 1000 |
WHAT TO EXPECT
IT firms will be under pressure, either from global headwinds or from lower client discretionary spending. This has also started to reflect in stocks (INFOSYS GDRs crashed 9% on July 20) of most of the companies.
With a pessimistic view FDIs towards IT (Rs 18,622.3 cr of outflow till July ‘23), IT stocks will be a grim sector for investors to park their funds. Thus we iterate an “UNDERWEIGHT” rating on the sector.
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