Q2 Results Watch: Toplines to be under pressure, weak rupee may help margins
The profitability of most Indian information technology (IT) companies is seen under pressure in the September quarter due to higher costs of US operations, spends in the digital business and transition costs involved in some large deals.
Operating margins, however, will find some support from the depreciation of the rupee against the dollar, said Kotak Securities in a report.
During the quarter, the rupee fell 1.4% against the US dollar, the report said.
Due to the decline in revenue growth from financial services, most companies are likely to report modest growth in topline in the second quarter of 2019-20 led by deal wins from other segments, the brokerage said.
“Slowdown in spending in financial services and a few client-specific challenges have led to the mixed growth outlook for companies,” the report said.
The demand for IT services in the banking, financial services and insurance sector (BFSI) space is seen dwindling on account of weakness in capital markets in Europe and restructuring of some regional banks in the US.
Tata Consultancy Services (TCS) is likely to face challenges in maintaining double-digit growth. According to the brokerage, factors such as order inflows, the impact of talent crunch in the US on margins, progress in new platforms business, and demand from the financial services vertical need to be watched.
Infosys is likely to increase its revenue expectations to 9.5-10.5% from 8.5-10% on the back of large deal inflows. However, higher attrition and steps taken to maintain margins will remain in focus.
Almost the entire revenue growth of the Delhi-based company is likely to come from IBM products. Revenue from digital and products businesses and further acquisitions will remain the focus.
Wipro is likely to report revenue in line with its guidance of 0-2% growth on quarter. The company’s ability to sustain its margin in light of muted growth and weakness in the weak BFSI climate will be in focus.
The company’s revenue growth during the quarter is seen muted as weakness in the enterprise segment will be mirrored by a slowdown in the automobile sector. Topline is seen supported by communications segment, mainly by a large deal signed with AT&T.