Home >Markets >Stock Markets >IT companies to report healthy revenue growth in Q3: ICICI Securities

Normally, this quarter is seasonally weak for technology companies due to furloughs. However, this year brokerages believe there will be an aberration to this trend. "We expect IT companies to report healthy revenue growth in this quarter led by lower furloughs, improvement in demand post Covid-19 and ramp up of deals won in the previous quarters," says Devang Bhatt, Research Analyst, ICICI Securities.

This, coupled with cross currency tailwind, will further boost revenue growth in the quarter, Bhatt adds. The companies are also seeing a demand tailwind in terms of cost takeout by clients (led by higher offshoring & automation), vendor consolidation opportunities, captive carve outs and traction in cloud & customer experience that could further propel demand in coming quarters.

The brokerage expects these companies, barring TCS, HCL Tech and Coforge to remain stable in terms of margins, mainly due to cross currency benefits, lower furloughs, offshoring partially offset by rupee appreciation.

Bhatt expects Tier-1 IT companies to see revenue growth in the range of around 2- 3% in constant currency terms. This, coupled with cross currency tailwind of around 50-60 bps will further positively impact dollar revenue growth (in the range of 3-4%).

"Among tier 1, HCL Tech, Infosys are expected to see dollar revenue growth of 4.0%, 3.8%, respectively. Tata Consultancy Services (TCS), Wipro are expected to witness dollar revenue growth of 3.6%, 2.9%, respectively. Among Tier 2, LTI is expected to see a sharp rise in dollar revenues of 5.5% QoQ followed by Mindtree, which is expected to witness revenue growth of 3.8% QoQ. We prefer Infosys in tier-1 and LTI in midcap," says the brokerage.

Margins to remain stable barring companies giving wage hikes

Infosys and Wipro are expected to register 2-18 bps improvement in EBIT margins due to lower travel cost, rationalisation and operational efficiencies partially offset by rupee appreciation. However, TCS & HCL Tech are expected to witness margin decline of ~100 bps mainly led by wage hikes.

In midcap, Mindtree to report healthy margins

Midcap companies are expected to report 3-45 bps improvement in EBITDA margins, with Mindtree leading margin growth with 45 bps QoQ improvement. However, Coforge is expected to register 75 bps QoQ decline in EBITDA margins mainly due to negative operating leverage.

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