Markets
Chart Beat: IT sector margins ebb in Q1FY25 hurt by wage hikes, visa costs
Summary
- For FY25, IT giants Infosys and HCL Technologies have guided for Ebit margin range of 20-22% and 18-19%
On one hand, Indian information technology (IT) companies continue to face demand pressures, keeping revenue growth visibility bleak. On the other, a combination of unfavourable factors such as wage hikes, higher visa costs and elevated selling, general, and administrative expenses are weighing on the sector’s Ebit margin performance. Ebit is earnings before interest and tax.
On an aggregate basis, tier-1 or large-cap IT companies reported around 20 basis points (bps) sequential contraction in Ebit margin in June quarter (Q1FY25), while tier-2/midcap companies saw a steeper fall of nearly 150 bps, showed an analysis by Motilal Oswal Financial Services. For the latter, a 250-bps sequential dip in Cyient’s margin was a drag. One basis point is one-hundredth of a percentage point.
Going ahead, IT companies are expected to continue focusing on cost-saving initiatives to curb margin compression. For FY25, IT giants Infosys Ltd and HCL Technologies Ltd have guided for Ebit margin range of 20-22% and 18-19%, respectively. Among mid-caps, the managements of Persistent Systems Ltd and Coforge Ltd expect margins to improve in the coming quarters aided by margin levers such as better utilization levels and operational efficiencies.
