Five out of 7 IT companies that have reported their numbers for Q2FY24 have revised their guidance downward for the year in a tough demand environment, leading to sputtering growth.
Infosys, HCLTech, L&T Tech Services and Happiest Minds have all cut their revenue guidance forecasts, and Wipro has guided for degrowth that was lower than anticipated. LTIMindtree and Tata Consultancy Services do not offer a revenue growth guidance target, but the latter has said that growth this year will be in single digits.
Wipro, the latest IT largecap to declare its results for the September quarter, offered a muted revenue growth guidance for the next quarter, lower than what was expected, at -3.5 to -1.5 percent. According to Chief Financial Officer Aparna Iyer, the guidance reflects a weak revenue environment.
“The weak guidance captures (1) higher furloughs, (2) continued weakness in discretionary spending and higher exposure to the same and (3) some revenue leakage due to wallet share loss,” analysts wrote in a Kotak Institutional Equities note. The guidance, it said, indicates the persistence of weak trends, and Wipro is “on a sticky wicket with continued growth underperformance versus peers, senior executive attrition, lack of mega deals and revenue leakage”.
India's second-largest IT company Infosys, which slashed its guidance sharply at the end of Q1, lowered the upper end of its guidance this quarter, and expects revenue growth at 1-2.5 percent now. Chief Executive Officer Salil Parekh told analysts that there are delays in the starting of large programs, and there are the deal closures were also taking longer.
“We are seeing discretionary spend which is coming down and we saw that continuing on transformation programmes being slow, that is also continuing on in this quarter,” he said. This, according to Parekh, factors in that Q3 and Q4 are seasonally weak quarters for the sectors.
Analysts at JM Financial said the constant guidance cut raises predictability concerns.
In the case of HCLTech, the company reduced its revenue growth guidance in for FY24 to 4-5 percent, which was previously 6-8 percent. In an interview to Moneycontrol, CEO C Vijayakumar attributed the cut in guidance to the performance of the company in the first half of the year, which has been weak.
“To deliver much higher growth in the second half or to keep the revenue growth guidance at 6-8 percent, it means, we really needed to do some 5 percent-plus growth sequentially, to get to 6 percent. Given our momentum, the big deals that we won — we had the highest booking in the last quarter. All of that will convert to good growth for Q3 and Q4. But eventually, it was only translating to 5-6 percent growth for the full year, because we lost out in the first half,” he said.
It wasn’t just the largecaps, midcap IT companies too made similar moves.
In the case of L&T Tech Services, the company slashed its guidance to 17.5-18.5 percent from 20 percent. Chief Executive Officer Amit Chadha said in a statement that while longer-term trends for engineering, research and development remain strong, they see long decision cycles and incremental headwinds from macro-economic stress in various geographies in the short term.
Happiest Minds halved its guidance this quarter, from 25 percent earlier to 12 percent. While the 25 percent number was a combination of organic and inorganic growth, the 12 percent is organic alone. CFO Venkatraman Narayanan told Moneycontrol that acquisitions the company intended to close have been delayed, and caused the company to take a relook at its guidance.
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