Revenue forecast for TCS, Wipro, Infosys, HCL and Tech Mahindra

Kotak Securities has revealed the expected performance of Indian software companies such as TCS, Wipro, Infosys, HCL Technologies and Tech Mahindra during the first quarter of fiscal 2019-20.
IT services India companies


Tata Consultancy Services will impress with steady broad-based revenue growth. TCS will achieve constant-currency revenue growth rate of 3.3 percent and cross-currency headwind of 55 bps. Revenue growth will be broad-based except for challenges in a large client in the capital markets segment. EBIT margin of TCS will decline by 70 bps qoq on reported basis largely on account of wage revision and INR appreciation. EBIT margin of TCS on adjusted basis will decline by 130 bps since 4QFY19 had one-time contribution to electoral bonds that impacted margin by 60 bps. Net profit growth appears modest but this is due to completion of buyback of equity.


Wipro is likely to post flattish revenue growth on adjusted basis; revenue growth will pick up in Q2 FY20. Wipro will achieve constant-currency revenue growth of 0.4 percent and cross-currency headwind of 65 bps. Wipro’s revenue growth will be lower on reported basis due to divestment of Workday business that impacted revenues by $9 million. Revenue growth expectation is within Wipro’s guidance of revenue decline of 1 percent to revenue growth of 1 percent for the June 2019 quarter. EBIT margin of Wipro will likely decline due to wage revision effective June 1, 2019, marginal appreciation of INR against USD and weak revenue performance. Net profit growth appears modest on yoy comparison despite strong EBIT growth due to high base of the June 2018 quarter where the company booked non-recurring gain of Rs 2.5 billion from sale of hosted data center business. Wipro’s revenue growth will be 0.5-2.5 percent for the September 2019 quarter, an improvement from expected performance of the June 2019 quarter.


Infosys is likely to report steady revenue growth with decline in margins. Infosys will achieve constant-currency revenue growth of 3.1 percent and cross-currency headwind of 45 bps. The financial services vertical of Infosys will report robust growth. Infosys’ revenues for the quarter include one month of revenue contribution from the Stater acquisition. EBIT margin of Infosys will decline by 110 bps taking into account  wage revision for 85 percent of employees that will impact margin by 100 bps, higher H-1B visa applications relative to the previous year that will result in additional costs and INR appreciation impact of 30 bps. The margin impact will be offset to some extent through higher utilization and cost-control measures.

HCL Technologies

HCL Technologies is expected to achieve muted revenue growth and decline in profitability during the first quarter. HCL Technologies expects to achieve constant-currency revenue growth rate of 1.55 percent of which 1 percent will be organic with the balance contributed by Strong-Bridge Envision acquisition. Muted revenue growth is on account of productivity adjustment for select clients in IMS and high base of earlier quarters due to transformation revenues booked from large IMS deals. HCL will have revenues from the acquisition of select products of IBM though there was some delay in closure by a month from the expected date of end of May 2019.

HCL Technologies will likely have a decline in profitability on account of delay in closure of acquisition of select IBM products. HCL Technologies may retain 14-16 percent revenue growth guidance despite delay in the acquisition by a month. HCL Technologies expects to retain organic revenue growth guidance of 7-9 percent and EBIT margin guidance of 18.5-19.5 percent.

Tech Mahindra

Tech Mahindra is likely to disappoint with revenue decline and margin contraction. Tech Mahindra expects to report revenue decline of 85 bps and cross-currency headwind of 65 bps. Tech Mahindra to post sequential revenue decline of 2.5 percent in the telecom business due to seasonal weakness in Comviva. Tech Mahindra expects to have 0.5 percent growth in c/c for the enterprise segment. Weakness in BFSI and manufacturing will likely contribute to weak numbers, while the healthcare segment will recover.

Tech Mahindra expects to achieve sequential EBIT margin decline of 250 bps contributed by 100 bps impact from wage revision, higher visa applications, INR appreciation and seasonal impact of lower Comviva revenues.

The report said financial services firms in the US and Europe towards the end of CY2018 had increased focus on cost-management initiatives in the face of an uncertain global environment. This along with a few client-specific issues such as M&A and leadership changes had led to softness in IT spends, especially in the capital markets segment in Europe in the March 2019 quarter with higher pressure on cost takeout initiatives and decline/delay in discretionary spends.

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