TCS, HCL Q1 Results This Week: IT Companies Likely To Post Improvement in Growth, Say Analysts

Two IT majors will announce their Q1 FY2024-25 financial results this week — Tata Consultancy Services (TCS) on July 11 and HCL Technologies on July 12. According to analysts, IT companies are expected to post moderate growth rate improvement, driven by seasonal strength, large deal ramp-up, and fewer cuts in discretionary programmes.

TCS Q1 Earnings

According to analysts at Motilal Oswal, TCS is likely to have grown 1.6 per cent QoQ CC, led by deal scale-up, including the BSNL deal, which is ramping up as per plan. Its EBIT margin may contract 150 bps QoQ owing to wage hikes in Q1FY25.

It added that the deal pipeline should remain healthy. Outlook on near-term demand & pricing environment, BFSI, and deal wins are key monitorables.

Infosys Q1 Earnings

According to Motilal Oswal, Infosys is expected to see a rebound in revenue growth to 2.0 per cent QoQ CC, on account of ramp-up of large deals won in FY24. Motilal Oswal expects the deal TCV to be robust in Q1; however, deals should be skewed towards the cost-takeout initiatives.

The operating margin for Infosys in Q1 is expected to increase by 30 basis points, supported by growth momentum and the absence of wage hikes. Infosys’ operating margin is likely to reach 20.4%. The company is also likely to maintain its growth guidance of 1-3% in constant currency for FY25, according to Motilal Oswal.

Overall IT Sector Q1 Expectations

Manish Chowdhury, head (research) at StoxBox, said, “We anticipate moderate growth rate improvement for many companies, driven by seasonal strength, large deal ramp-up, and fewer cuts in discretionary programs. The EBIT margin will vary sequentially across different companies based on wage revision, but it will be steady or increasing for many on a YoY basis.”

Although large and mega-deal announcements have been somewhat moderate, the timing of large deal signings tends to be volatile, and signings can bounce back for others in Q2FY25. Our focus would remain on management commentaries indicating the emergence of green shoots in growth and revival in H2FY25. Furthermore, the increasing adoption of new-generation technologies, particularly AI, is expected to counterbalance the slow growth in enterprise spending, he added.

“Another trigger for the IT companies is the possibility of a Federal Reserve interest rate cut in September 2024 that may show early recovery, particularly in the BFS sector. We believe the valuation across the companies remains comfortable and our outlook remains positive on the sector,” Chowdhury said.