The September quarter earnings were a mixed bag for large cap IT firms. While Infosys quarterly results were significantly better than the Dalal Street’s expectations, its lowering of dollar revenue guidance for the ongoing financial year played a spoilsport. Wipro earnings met with not-so-high expectations, while HCL Technologies’ numbers also came in a tad above the already tapered expectations. TCS ‘ numbers too were not up to the mark. The largest IT major TCS posted numbers below analysts’ expectations for the fifth quarter in a row. The company’s constant currency revenue growth of 3.9 per cent was way below the consensus growth estimate of 4.5 per cent. Experts believe that while the sector may face some hiccups in the short term due to the pricing pressure amid a change in the nature of the business, long-term outlook for the sector looks promising.
Gaurang Shah of Geojit BNP Paribas Financial Services said that his brokerage maintains a positive view on the top four IT companies by sales. The expert believes earnings visibility for these firms will improve and management commentary will be more robust in the quarters to come. “IT companies will focus on their core businesses and will avail tremendous opportunities from the government’s Digital India and Make in India drive. For instance, Infosys recently grabbed a contract to develop and operate the technology platform for the proposed goods and services tax (GST),” Shah told Business Today online. ALSO READ: IT services industry investing in innovation TCS has reported a 16 per cent year-on-year (YoY) surge in net profit in the quarter ended September 30, followed by Infosys and Wipro, whose consolidated profit grew 9.8 per cent and 7.2 per cent year-on-year, respectively. HCL Tech reported a 2.7 per cent dip in net profit in Q2, but remained bullish on the quarters ahead on the back of a strong deal pipeline. As far as top line is concerned, Infosys’ Q2 revenue growth of 6 per cent in dollar terms was highest in the last 16 quarters. HCL Tech posted 15.6 per cent year-on-year and 3.3 per cent quarter-on-quarter growth in revenues, but a measly 0.5 per cent sequential growth in dollar revenues. TCS’s revenue growth in constant currency terms came in at 3.9 per cent, while Wipro had a sequential increase of 2.1 per cent in dollar terms. Shah said, “It is not that the global markets have melted down completely. Though pricing competition is still there and orders are coming up slow, but it should change because IT is an ever-evolving sector.” Digitisation: The way ahead Ravi Shenoy of Motila Oswal Securities (MOSL) believes IT companies will have to focus on digital enablers. “IT companies need to work hard on transformation. HCL Tech’s plan to buy Volvo Group’s external IT business is a step in right direction. Whosoever will adopt digital enablers aggressively, will lead the IT pack,” Shenoy told Business Today online. Brokerage Edelweiss Securities believes IT industry is moving to the 10-12 per cent revenue growth phase over the next 3-5 years, riding a strong momentum from adoption of digital technologies and automation of traditional business. Among four IT giants, TCS is riding the digital wave fastest, it said. “The company is seeing good traction in digital business, which is now contributing 13.3 per cent of revenue from 12.5 per cent in the June quarter. It reported 10.3 per cent sequential revenue growth in this business in constant currency terms,” the brokerage added. Wipro doesn’t declare its digital revenues but CEO TK Kurien did say digital business has shown strong traction with seven deal wins in the September quarter.