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IT firms to post sequential revenue growth near pre-covid levels in Q1: Report

High utilizations, sharp spike in attrition, and bottlenecks related to campus hiring should translate into supply-side cost pressures (Bloomberg)Premium
High utilizations, sharp spike in attrition, and bottlenecks related to campus hiring should translate into supply-side cost pressures (Bloomberg)

  • Tier-1 companies should report 1.4-4.0% quarter-on-quarter organic growth in constant currency with Infosys Ltd and Tech Mahindra Ltd leading the pack. Organic growth in tier-2 companies should be broadly in a similar range

IBENGALURU: Indian IT companies are expected to post sequential revenue growth near pre-covid levels in the first quarter ended June, which is seasonally strong, according to an ICICI Securities report.

In conjunction with some base shift, tier-1 companies should report 1.4-4.0% quarter-on-quarter organic growth in constant currency with Infosys Ltd and Tech Mahindra Ltd leading the pack. Organic growth in tier-2 companies should be broadly in a similar range.

“Covid second wave impact on delivery will be limited depending on delivery location and fungibility of the bench resources," the report said.

Full or partial wage hikes will be a key margin headwind. Further, high utilizations, sharp spike in attrition, and bottlenecks related to campus hiring should translate into supply-side cost pressures, the report said.

The brokerage firm expects tier-1 and -2 EBIT margins to contract 10-200 basis points and 0-350 basis points respectively on a sequential basis. The full impact of salary hike will come for companies like Tata Consultancy Services Ltd (TCS), Tech Mahindra, Coforge Ltd, and L&T Infotech Ltd. Partial impact will be felt in companies like Wipro Ltd, Mphasis Ltd, L&T Technology Services Ltd, and Cyient Ltd.

The street is already ahead of FY22 revenue guidance for Infosys at 16.5% annual growth in constant currency versus guidance of 12-14%. “Absence of meaningful upgrade (at least 1%) will be disappointing. Growth and margin outlook for the sector should remain largely stable," the report said.

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