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Last Updated : Feb 21, 2020 08:23 AM IST | Source:

Some pain, some gain; Q3 a mixed bag for IT companies

BFSI and retail verticals of the IT firms continued showing weakness. Besides, the margins of IT players improved sequentially but shrank on an annual basis.

Representative image
Representative image
  • bselive
  • nselive
Todays L/H

The December quarter earnings of Indian IT companies were mixed but along expected lines.

Weak macroeconomic environment and rupee's volatility posed a challenge to their growth and the quarter saw moderation in Tier 1 organic revenue growth rate sequentially.

BFSI and retail verticals of the IT companies continued showing weakness. Besides, the margins of IT players improved sequentially but shrank on an annual basis.


"Margins improved sequentially as companies work their way on cost-optimisation levers, but shrank on an annual basis due to structural changes in the industry," brokerage firm Motilal Oswal Financial Services said.

Despite uncertain macros, companies highlighted robust deal wins, particularly Infosys and Tech Mahindra.

In the third quarter, companies slowed down on headcount addition. TCS and Tech Mahindra reported a headcount decline against strong additions in the first half of FY20, Motilal Oswal said.

Tier-I IT firms delivered a steady performance on revenue growth and EBIT margins.

As per Centrum Institutional Research, aggregate USD revenues of the top six IT vendors stood at $19.1 billion, up 1.6 percent quarter-on-quarter (QoQ) and 6.9 percent year-on-year (YoY).

HCL Tech delivered robust YoY revenue growth (15.5 percent in USD and 16.4 percent in constant currency) aided by the acceleration in organic revenue growth as well as inorganic initiatives (IBM IP deal revenues effective Q2FY20). TCS and Infosys also showed steady USD revenue growth YoY at 6.4 percent and 8.6 percent YoY, respectively, Centrum said.

Digital continued to remain a strong area while traditional business remained under pressure.

"Digital business revenues grew at 40 percent and 23 percent YoY for Infosys and Wipro, respectively. Their traditional business revenues declined by 6 percent and 7.7 percent YoY, respectively," Centrum said.

IT, as a sector, witnessed steady incremental revenues in Q3FY20.

Estimates of Centrum shows that the top six companies combined added $307 million in additional revenues for the quarter against $335 million in Q3FY19.

Hiring trends also marked a decline.

"Hiring trends remained soft with the top six companies (combined) adding 12,737 employees for Q3FY20 against 30,821 employees in Q3FY19. Net addition for the nine months of FY20 stood at 81,279 employees which is a 17 percent reduction YoY," said Centrum.

Overall, the December-quarter corporate earnings season was a mixed bag with a slightly cautious tone from the management of India Inc.

Corporate tax rate cuts continued supporting earnings growth. BFSI and Consumer drove the earnings, while Metals dragged the aggregates.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.


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First Published on Feb 21, 2020 08:23 am
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