Hamstrung by the coronavirus outbreak, IT firms are staring at tepid March quarter results. According to some brokerages, firms are likely to report de-growth in FY21 dollar revenues.
Brokerage firms peg the March quarter growth to be in the range of -0.5 percent to 1.3 percent in constant currency (CC) for large cap-firms and -2.5 percent to 3 percent (CC) for mid-tier IT firms.
While HCL Tech is expected to be affected the least, Tech Mahindra, according to reports, will bear the maximum brunt. HCL Tech in a statement said that it does not expect COVID-19 to impact its Q4 revenues given its strong order bookings. In case of Tech Mahindra, the company has 9.8 percent contribution from BPO, a significant portion being voice BPO.
In case of Infosys, TCS and Wipro, these firms are likely to see negligible growth on account of exposure to travel and transportation, lockdown in India and other developed markets such as the US and Europe.
Guidance
Given the macro-economic factors, a report by brokerages firm Motilal Oswal pointed out that IT service firms are likely to delay their FY21 revenue and margin guidance to subsequent quarters.
"Even if they were to guide, these guidance bands will likely be wider than usual and subject to sharp revisions later on as clients relook at their IT budgets," the statement added.
However, rupee depreciation and lower travel cost could to some extent offset the revenue loss.
Other concerns
Key concerns given the circumstances would be pressure on pricing, lack of visibility in the next few quarters and fast adapting to changing demands in the post COVID-19 world.
In an interaction with investors, R Srikrishna, CEO, Hexaware, touched upon pricing pressure as clients try to tide over the crisis. He said then that in a bid to be supportive to its customers, Hexaware will offer discounts to clients in affected verticals. However, it will be based on the strength of the customer and if they could be associated with Hexaware for the long term.
Analysts agree that visibility at this point is less. In an earlier interaction with Moneycontrol, Pareekh Jain, founder, Pareekh Consulting, pointed out that the impact is likely to affect the June and September quarter results of IT companies as well.
Employees
So far none of the IT firms have made any announcement with regards to layoffs given their rich cash reserve. Human Resources personnel have reasoned that companies may delay on-boarding of freshers till August-September and do it in a phased manner. However hiring would freeze. Appraisal payouts will take hit too.
