Earnings season for Nifty 50 companies for quarter ended March 2023 and full financial year 2022-23 will begin with Tata Consultancy Services reporting its numbers on Wednesday (April 12). IT companies are likely to report subdued earnings for the last quarter of financial year 2022-23 on the back of worsening macro conditions and recent banking crisis in US and Europe.
"Worsening macro conditions and recent banking crisis in US & Europe indicate slowing down of tech spends by enterprises globally. We believe enterprises will shift their focus on cutting cost resulting in higher cost take out deals, vendor consolidation & lower discretionary spend. BFSI, Telecom, Retail and Hi tech verticals are expected to be the impacted by the slowdown, thus weakening H1FY24E growth outlook," brokerage firm IDBI Capital said in a report authored by analysts Devang Bhatt and Dhawal Doshi.
For Q4FY23E, we expect large caps to register dollar growth of -1 to 1 per cent quarter-on-quarter (QoQ) in constant currency (CC) terms aided by 15-100 basis points (bps) cross currency tailwind. Among mid-caps we expect revenue growth of -1 to 3.5 per cent QoQ (organic) in CC aided by 30-150 bps cross currency. Further, Tier I margins are expected to record QoQ growth in the range of -99 – +90 bps, IDBI Capital said.
TCS is expected to lead the IT pack with sequential revenue growth of 1 per cent. While, Infosys, Wipro and Tech Mahindra are expected to register flat revenue growth sequentially.
However, margins are likely improve for IT companies on the back of easing of supply side challenges, lower attrition and cost rationalization.
"Large caps (except HCL) are expected to report 24-90 bps improvement; mid-caps (except Birlasoft) are expected to register margin expansion in the range of 60-221 bps QoQ," IDBI Capital noted.
From TCS, analysts will keenly watch out for commentary on clients' tech budgets, strategy of new CEO K Krithivasan, TCV of deal wins, timeline of deal closures and deal pipeline, hiring and offshoring, outlook on EBIT margin and its sustainability, commentary on long term digital trends, commentary on Europe, impact on verticals due to macro situation (BFSI in particular), attrition trend and FY24 growth and margin outlook.
Meanwhile, for Infosys, revenue growth in constant currency terms is likely to be flat and growth is expected to be muted due to delayed decision making by clients.
EBIT margin is expected to expand by 83 basis points to 22.3 per cent due to flatter pyramid and reduced attrition levels.