Five things to watch out for in Infosys and Wipro Q2 earnings2 min read . Updated: 12 Oct 2021, 03:57 PM IST
- Given the strong demand environment, investors expect Infosys to raise its existing FY22 revenue growth guidance
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BENGALURU : After Tata Consultancy Services Ltd (TCS) missed revenue estimates last week, all eyes are on peers Infosys Ltd and Wipro Ltd. Both the Bengaluru-based companies will be announcing their second quarter earnings on Wednesday.
Given the strong demand environment, investors expect Infosys to raise its existing FY22 revenue growth guidance. Wipro, which gives a quarterly guidance is also expected to show greater confidence and management commentary on the outlook and recovery trajectory will be closely monitored.
As per Bloomberg consensus estimates, Infosys is expected to clock revenue of ₹29,385.70 crore and a net profit of ₹5,277.20 crore. Wipro is expected to post revenue of ₹19,385.20 crore and a net profit of ₹2,857 crore.
Mint highlights five things to watch for in Infosys’ and Wipro’s second quarter (Q2) results that will be declared on 13 October, after market hours.
Revenue guidance and growth
Analysts expect Infosys to revise its revenue growth guidance upwards. According to Emkay Research, Infosys is likely to revise its guidance upwards to 15-17% from the earlier projection of 14-16%. The brokerage firm expects Infosys to lead revenue growth among the tier-1 companies with a 5.7% sequential growth in constant currency on an organic basis, while Wipro is likely to deliver 6.9% sequential reported growth. “Recent Accenture guidance suggests the demand environment for Indian IT companies continues to be strong," ICICI Securities said in a note.
Investors will closely watch the deal pipelines of Infosys and Wipro as both have won some large digital transformation deals in the recent past. In the second quarter, Infosys signed deals with clients including Union Bank, UCAS, and Manitoba Insurance, while Wipro bagged deals from First Horizon Bank, E.ON, and Maxis Broadband, among others. Deals pipeline and deal closure momentum will be a key parameter to monitor.
Digital and cloud have been the key drivers of growth for IT services companies since the pandemic began, so investors will track the digital growth momentum for both Infosys and Wipro. For the first quarter ended June, Infosys’ digital business grew 42.1% y-o-y in constant currency and contributed 53.9% to the total revenues. While Wipro has stopped calling out digital revenues separately, it has also been a key beneficiary of the digital transformation journey of its clients.
Hiring and attrition
Indicating the demand in the industry, TCS said during its Q2 earnings that it has already crossed the projected target of hiring and expects to hire another 35,000 in H2 FY22. On a trailing 12-month basis, the attrition rate of TCS also increased to 11.9% from 8.6% in the June quarter reflective of the overall trend in the sector. Similarly, the hiring and attrition numbers of Infosys and Wipro will be closely monitored given the strong demand environment.
Management commentary on outlook
Investors will closely monitor the management’s commentary on demand outlook and market share gains. As per Gartner, global IT spending is expected to grow at a CAGR of 6.9% during CY20-22 to $4.4 trillion. Growth is expected to be fuelled by IT services (29% of the mix) and the market share of Indian IT companies has grown from 5.9% in CY12 to more than 12% in CY20. Investors will closely watch management commentary on demand environment, ramp up of deals, digital momentum, and pricing pressure.
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