Top Indian IT services companies such as Tata Consultancy Services (TCS) Ltd, Infosys Ltd and Wipro Ltd are expected to post muted guidance for FY21, with the Covid-19 pandemic leading to a business slowdown worldwide, including key markets such as the US and Europe.
“Gartner is reducing its overall IT forecast in response to the weakening of demand in key economies across the globe. On the basis of information available today, the IT services segment will be negatively impacted and, if the visible impact of coronavirus goes beyond the end of March, IT services companies will recalibrate their original revenue projections for 2020," said Naveen Mishra, senior research director, Gartner.
Most IT companies, which typically give their guidance along with their fourth quarter earnings in April, will now have more time as the Securities and Exchange Board of India (Sebi) has allowed listed companies to defer the disclosure of Q4 and annual earnings by 45 days to 30 June.
Companies are seeing a slowdown in closure of deals as all verticals such as banking, financial services and insurance, retail, travel and manufacturing are adversely impacted because of Covid-19, said Harit Shah, senior IT analyst,IndiaNivesh, a research firm.
“Travel, tourism, airlines, and retailers will be severely hit as all segments will observe a weak demand while different parts of globe recover from the impact of coronavirus," Mishra said.
TCS, Infosys and Wipro did not respond to queries on the impact on their business due to the global virus outbreak.
“Wipro will see obvious impacts of Covid-19 on growth in FY21 to be exacerbated given higher exposure than peers to segments like Oil & Gas and regions like Middle East," ICICI Securities said in a research note dated 17 March.
“Wipro’s Q4 revenue growth is expected to be in the guided range of 0-2% sequentially as existing projects are not being disrupted," the brokerage firm said. However, “with new business opportunities being more vulnerable to the impacts of Covid-19, we expect revenue guidance for Q1FY21 to potentially be in the range of -2% to 0%."
“Wipro’s revenue story was expected to improve across business segments barring hi-tech and healthcare though that view now needs to be recalibrated in the aftermath of Covid-19," ICICI Securities said.
It is difficult to precisely measure the impact of the pandemic on business, but “Infosys is committed to defend its market share and will likely still deliver growth in FY21 in line with peers like TCS, despite having a higher discretionary exposure," ICICI Securities said in a note, citing a discussion with Nilanjan Roy, chief financial officer, Infosys. Even with out the impact of Covid-19, “we were anyway expecting Infosys’ organic revenue growth to decelerate in FY21 to 7% from about 9% in constant currency terms expected in FY20," it said.
“Infosys management believes that apart from ‘net-new’ discretionary work which can potentially get postponed, impact on existing book of business from Covid-19 should be limited. Lights-on (routine) work around infrastructure and maintenance is expected to continue even if Covid-19 issues persist," it said.
IT companies can “minimise their operating costs and complete all contracts on time but nothing much can be done as this is an unprecedented event", said Shah.
Most IT services companies have issued work-from-home (WFH) advisories, but it is not viable for them to offer a blanket WFH to everyone because of issues of infrastructure and client-confidentiality. “In general, key challenges while considering work-from-home are culture, desired infrastructure, including the ability to safely access client data from home, and employee orientation to be productive at home," Mishra said.