The September quarter earnings season is unlikely to throw any surprise. The revenue performance is likely to remain soft while sequential growth (dollar terms) is likely to be boosted by 50-150bp on account of a stronger Euro/GBP/AUD, BofA-ML said in a report.
Q2 is likely to cement FY18 as a year that did not witness the expected cyclical uptick with a) spends from major verticals like financial services and retail remaining weak and (2) at least some pockets of the market witnessing slower decision making in the first half of the fiscal amidst the political situation in the US, it said.
The global investment bank further added that the sequential growth (dollar terms) is likely to be boosted by 50-150bp on account of a stronger Euro/GBP/AUD.
It expects strong top-line growth for L&T Technology Services & healthy margin expansion for Tech Mahindra while revenue performance by HCL Technologies and TCS is likely to be soft.
BofA-ML expects Tech Mahindra to post a healthy EBIT margin expansion of 110bp on a QoQ basis on the back of aggressive cost-cutting efforts over past 3-4 months and amidst limited annual wage increments for employees.
On the other hand, it expects L&T Technology Services to post a strong topline growth of 7.8 percent QoQ (constant currency), aided by ramps in recent large deal wins and full-quarter contribution of Accentia (~250bp). The EBIT margin is likely to trend flattish on a QoQ basis on account of integration & deal ramp costs.
Revenue growth for HCL Technologies is likely to be weak at 1.6 percent QoQ (cc) on delays seen in the closure of infrastructure services deals in the first half of the year.
“We still expect the company to maintain its full-year revenue guidance and the commentary to be optimistic as the pace of deal closures in infrastructure services has likely started to pick up,” said the report.
At TCS, amidst slow spending in the large verticals of banking and retail, BofA-ML expects revenue growth to remain soft at 2.7 percent on a QoQ (cc).
Growth is once again likely to be led by the smaller verticals of utilities, travel, life sciences. Commentary could convey optimism for H2 on the back of a significant deal closure in insurance but the broader momentum might still be soft, said the note.
For Infosys, BofA-ML expects sequential revenue growth of 3.2 percent on a QoQ basis on a constant currency basis and 4.4 percent QoQ in USD terms, aided by strengthening EUR, AUD and GBP during the quarter.
For Wipro, the September quarter revenue growth is likely to remain soft. Guidance for Q3 at our expected 1.5-3.5 percent QoQ is likely to suggest some improvement in organic traction on the back of an uptick in new deal wins, said the B0fA-ML report.
However, even with this improvement, Wipro’s organic growth trajectory remains comfortably below peers. Outlook in its healthcare vertical could continue to stay soft in the near-term, it said.
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