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earnings | IST

IT Q3 earnings: Infosys, Wipro likely to post 4% revenue growth, says Elara Capital

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As the holy trifecta of IT companies, namely Wipro, Infosys and Tata Consultancy Services (TCS) prepare to kick-off earnings season with their Q3 results tomorrow, CNBC-TV18 spoke to Apurva Prasad, VP-Institutional Research-IT Sector, Elara Capital, to get his views on the upcoming IT earnings. Prasad expects Wipro and Infosys to post around 4 percent revenue growth on a QoQ basis. He is confident that Tech Mahindra will have the strongest growth numbers. Among the mid-tier IT names, he likes Mphasis and Persistent Systems.

With the ongoing pandemic, there was a growing need among one and all to shift to digital, which in turn brought the IT companies to the forefront. Nifty IT saw one of its best runs in the last two quarters. As the holy trifecta of IT companies, namely Wipro, Infosys and Tata Consultancy Services (TCS) prepare to kick-off earnings season with their Q3 results tomorrow, CNBC-TV18 spoke to Apurva Prasad, VP-Institutional Research-IT Sector, Elara Capital, to get his views on the upcoming IT earnings.
Prasad mentioned that from a growth perspective, he expects Wipro, Infosys to post close to 4 percent revenue on a quarter-on-quarter (QoQ) basis. According to him, Tech Mahindra will be posting the strongest growth in Q3 but it will be aided primarily by acquisitions. He specified that his expectation from TCS isn’t running too high this time around.
"From a growth perspective, we do expect Infosys and Wipro to be posting close to 4 percent as compared to TCS. Purely in terms of the numbers, within the entire tier-I pack, Tech Mahindra should be posting the strongest growth but then that's also going to be aided to some extent by inorganic components," he said.
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Among midcap IT companies, Prasad likes Mphasis and Persistent Systems. He believes the growth runway will be strong for the midcap IT names. He expects these companies to post a growth premium of 600-700 basis points (bps) over their largecap counterparts.
"The fundamental momentum in the earnings momentum is certainly strong and certainly a lot more within the mid-tier. I think at current price points, Mphasis would certainly score there; from a slightly more medium-term perspective, we like Persistent Systems," he said.
Prasad added, "The runway is very strong for a lot of these mid-tiers. I think there is going to be a growth premium of 600-700 basis points (bps) that mid-tier IT is going to post as compared to the tier-I companies."
Prasad, however cautioned that total contract value (TCV) of deal wins have been declining owing to fewer large deals. "The interesting thing is, while you would see the total contract value (TCV) numbers have been trending down, that's primarily because there are not enough mega deals as compared to the year before. And that's primarily because the mix of smaller duration deals have gone up," he further mentioned.
According to Prasad, an important indicator of growth is hiring. He explained that for largecap IT companies, hiring is around 50,000 per quarter.
"The other big indicator of growth is what's happening on the hiring side. And I think it's fairly visible, the rates have gone up by 3-4x. That's the quantum of hiring, so between the top five companies, they were taking in 15,000-17,000 a quarter and number has gone up to almost 50,000 a quarter," he said.
Watch the accompanying video for the full interview.