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Mid-tier IT firms to post better revenue growth rate than large firms in Q2FY25

by databiztimes.com
4 October 2024
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  • Earning season of IT firms will start from October 10 with TCS announcing its Q2 results

DBT Bureau

Bengaluru, 4 October 2024

Mid-tier IT services companies are likely to post better revenue growth than large IT firms in the second quarter of ongoing financial year (Q2FY25), results of which will be announced from October second week onward.

According to brokerage firms, revenue growth of most firms is likely to improve year-on-year basis on the back of steady improvement in the demand environment and usual seasonal strength.

“The revenue growth is expected to improve on YoY basis on the back of a steady demand environment, benefits from large deal ramp ups, and some recovery in the BFSI vertical,” brokerage firm, Emkay Global said in a report.

“For tier-I companies, the estimated revenue growth of 0.9-3% QoQ (quarter on quarter), whereas mid-caps are expected to grow 2.1-4.5% (Coforge reported numbers would be higher due to integration of Cigniti). Among verticals, the companies highlighted green shoots in BFSI (particularly in North America) in Q1FY25, and the trend continued in Q2 as well. Retail and Hi-tech are seeing some softness, while healthcare and manufacturing are expected to remain relatively resilient. The underlying demand in communications remains weak. Deal wins are expected to remain steady this quarter,” the report added.

According to the brokerage report, Infosys is expected to raise its annual revenue guidance to 3.5% to 4.5% from current 3-4%. However, it is likely to maintain its operating margin guidance of 20-22%.

It also mentioned that HCL Tech is expected to retain its revenue growth guidance of 3- 5% and operating margin guidance of 18-19%. Similarly, Wipro is expected to guide for -1% to +1% revenue growth in Q3FY25.  

“Margin performance is likely to improve sequentially, except for a few companies implementing wage hikes in Q2. Absence of visa costs and cost-optimization measures would support margin, whereas ramp up of large deals should partly negate it,” the report said.

While for large companies, margins are expected to remain flattish to 110 basis points expansion on a sequential basis, it will be in a divergent range of -180 to 260 basis points QoQ, due to wage hikes and M&As, it added.

During Q2, the total employee count of IT firms is expected to see an uptick on the back of a sound number of fresher hiring during the quarter.

The earning season of Indian IT firms is all set to begin as Tata Consultancy Services will announce its Q2 result on October 10. Infosys will announce its results on October 17, while HCLTech is scheduled to announce its results on October 14, 2024.

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