Looking ahead at IT companies results

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New Delhi: The results of tech companies are being keenly watched. This week, Infosys Ltd will kick off the earnings season for tech companies with its quarterly and full-year results on Friday, 15 April.

India’s top five IT companies are likely to post modest sequential revenue growth of up to 3% (in constant currency terms) in the traditionally weak March quarter, but they are expected to present an upbeat outlook for FY17, with some analysts projecting Infosys’ annual guidance to beat even the most optimistic estimates on Dalal Street.

Experts largely expect HCL Technologies and Infosys to lead growth during the March quarter with cross-currency headwinds likely to make a 30-80 bps dent in dollar revenues for the fourth quarter of FY16.

Infosys

Coincidentally, Infosys Ltd results come out on a day, 15 April, when the markets are shut on account of Ram Navami.

Q3 results: India’s second largest information technology (IT) services company beat the street’s estimates with better-than-expected financial numbers for the three months ending December, the third successive quarter in a row, reported Business Standard. The third quarter results were declared in January.

The company reported consolidated a net profit of Rs.3,465 crore for the quarter, registering a growth of 1.97% quarter-on-quarter (q-o-q) and 6.61% year-on-year (y-o-y). The company’s consolidated revenue stood at Rs.15,902 crore, clocking growth of 1.70% q-o-q and 15.26% y-o-y. Infosys’ Q3FY16 results were bang in line with estimates, said an India Infoline report .

Outlook: Infosys has maintained aggressive growth outlook since Vishal Sikka took over as the CEO of the top software firm in August 2014 to reach the $20 billion target by 2020. Expectations are that the company will revise its revenue target to 16% for FY17. In mid-February, at Infosys Ltd’s annual brainstorming meet in Mysuru, CEO Vishal Sikka told everyone present that he wants to grow the IT firm’srevenue by 16% next year (2016-2017).

Analysts are unanimous in having a positive outlook for the company in the fourth quarter.

Infosys is likely to beat the Nasscom guidance and grow 11-13% y-o-y, according to broking firm Jefferies. Nasscom has given a growth guidance of 10-12% y-o-y for FY17E. Jefferies has maintained its “buy” rating on the stock. “Despite concerns on macro and industry deceleration, momentum is likely to sustain on the back of strong deal pipeline and order book,” the Jefferies report said.

Brokerage house Religare Institutional Research expects Infosys revenues to come in at the upper end of its FY16 dollar revenue guidance of 8.9-9.3% y-o-y. The company is likely to guide for dollar revenue growth of 10.5-12.6% in FY17, reported Economic Times.

Centrum Broking estimates Infosys to guide for 11-13% dollar revenue growth for FY17. “Infosys’s earnings before interest, taxes, depreciation and amortization (Ebitda) margins to improve by 20 basis points (bps) q-o-q aided by currency tailwinds for the quarter. IT service utilisation rates stood at 80.6% for 3QFY16, and we see scope for further improvement,” the brokerage house said in a Q4FY16 results preview.

“We expect Infosys to guide 11-13% revenue growth in constant currency terms and retain the 24-26% EBIT margin band in FY2017E,” Kotak Securities too said in a note.

According to 25 analyst estimates of Bloomberg, the company may post a net profit of Rs.3,500.8 crore, while net sales will be at Rs.16,415.10 crore, Mint reported last week.

Stock performance: Post October-December results, the stock has been outperforming the market by gaining 14% as compared to 2% gain in S&P BSE Sensex since 13 January, said a BS report quoted earlier.

However, shares of Infosys Ltd hit a three-week low on 7 April, following a huge block deal in the secondary market. Around 5.67 million shares of the company have changed hands in six block deals, Bloomberg reported .

It again slipped on the BSE on 11 April after Aberdeen Asset Management Asia pared its stake in the company, a disclosure that was made on 8 April, a Friday.

TCS

The next in line to announce results among tech companies will be Tata Consultancy Services, the country’s largest IT firm—on 18 April, the day markets may react to the Infosys result after the weekend.

Q3 results: The company’s third-quarter bottomline performance was slightly ahead of analysts’ expectations but revenue missed estimates for the sixth consecutive quarter. Profit increased 0.9% q-o-q to Rs.6,109.5 crore during the quarter. Rupee revenue in December quarter rose 0.7% to Rs.27,364 crore, while dollar revenue declined 0.3% to $ 4,145 million compared to the preceding quarter, affected by seasonality and Chennai floods. TCS had warned that Chennai floods would have a material impact on revenue during the December quarter as Chennai is one of the company’s largest delivery locations, with over 65,000 employees.

To see the complete set of financials for TCS in the third quarter, read here .

While TCS called its performance in the December quarter pretty steady, barring the sharp decline in its India business, analysts and investors are growing tired of such assessments. The company’s growth has fallen short of the Street’s expectations for six straight quarters now, and investors’ patience is running thin, reported Mint in January.

Outlook: In a results preview , Kotak Institutional Securities said, “We expect TCS to report 2% growth in constant-currency and cross-currency impact of 50 bps. TCS’ Ebit margin in the December quarter was impacted by floods in Chennai. We expect margins to improve by 45 bps q-o-q partly aided by rupee depreciation. Focus will be on TCS commentary on demand, growth outlook and its positioning in digital.”

Edelweiss Securities anticipates modest revenue growth. “Though the second half of a financial year is generally weak for Indian IT large-caps such as Infosys and TCS, we anticipate modest q-o-q revenue growth during the fourth quarter of FY16, given the absence of the Chennai flood loss and one additional day in February,” Edelweiss said in a note.

Stock performance: A day after TCS held an analyst meeting on 17 March to demonstrate its digital services business, its shares rose as much as 2.79% to its highest since 5 February. TCS has been gaining ahead of its earnings, Bloomberg reported.

Wipro

Wipro Ltd will be the third prominent tech company to announce its results on 20 April.

Q3 results: The company announced its third quarter results on 18 January.

Wipro’s third quarter result wasn’t much to write home about. The company’s dollar revenue from IT services grew a modest 0.3%, sequentially, versus TCS’ decline of 0.3%, reported the Hindu Business Line in January.

Consolidated net profit of the IT company grew 1.88% y-o-y to Rs.2,234 crore. However, it fell 0.06% q-o-q. Total Income from operations (net) of Wipro increased 7.17% y-o-y toRs.12,951.60 crore for the quarter ended December 2015 against Rs.12,085.10 crore in the corresponding quarter a year ago. The figure was at Rs.12,566.80 crore in the sequential quarter ended September 2015.

To see the full third-quarter results of Wipro, read here .

Outlook: Kotak Institutional Equities noted in a report on results preview, “We note that the March quarter is a seasonally strong quarter for Wipro, while Infosys has worked to overcome its traditional seasonal weakness.” However, the brokerage reduced the rating on the company with a target price of Rs.550. “We expect 50 bps (basis points) improvement in Ebit (earnings before interest and tax) margin led by absence of costs pertaining to Chennai floods, benefits of rupee depreciation and some recovery in profitability of the IT products segment. We expect Wipro to guide 3.5-5.5% constant currency (c/c) revenue growth (1-3% organic c/c growth) for Q1FY17,” the note said. Read more

Cognizant

The company hasn’t put out the dates when it will announce its March quarter results yet.

Q3 results: Cognizant Technology Solutions Corp.’s December quarter numbers would likely sound a warning bell to investors in Indian IT stocks. After beating the Street estimates for several straight quarters, its December quarter revenue of $3.23 million fell short of analyst forecasts, said a Mint report .

The IT services provider forecast its slowest revenue growth in 14 years for the December quarter, as clients worldwide reined in IT spending, Reuters reported .

Revenue in the three months ended in December rose 18%, y-o-y, to $3.23 billion, yielding earnings per share of 80 cents. Analysts had been modelling $3.24 billion and 78 cents.

Outlook: Cognizant is looking at the March quarter revenue in the range of $3.18-3.24 billion, which translates into a decline, or at best negligible growth sequentially. Secondly, for the whole year 2016, Cognizant is guiding for 10-14% revenue growth, a far cry from the 21% growth for 2015. It is also a much wider range than normal, implying a sense of uncertainty, said the Mint report quoted above. The company’s two largest verticals—financial services and healthcare—are the main reasons for the poor guidance, it said.

New Jersey-based Cognizant said it expects adjusted profit of between 78-80 cents per share and revenue of $3.18 billion-$3.24 billion for the three months ending March,Reuters said.

In February, Cognizant said it expected little or no growth in the three months to March, reported the Business Standard.

Cognizant forecast revenues in the range of $3.18 billion to $3.24 billion, suggesting that revenues will take a marginal dip or stay flat, indicating that the company expects a pickup in performance over the next three quarters of the year.

The company has guided that its revenue will be in the range of $13.65-14.20 billion for the calendar year, representing a growth of 9.9-14.3%.

HCL

HCL Technologies too is not expected to announce its fourth quarter results in the month of April.

Q3 results: HCL Technologies reported a set of stellar numbers for the quarter ended 31 December. India’s fourth largest IT services provider reported a strong quarter on the back of higher margins and deal wins. “HCL has always been on the forefront of changing market dynamics. As a company with good corporate governance practices and robust financial performance, we continue to create exceptional value, both for businesses as well as communities in which we operate,” said Shiv Nadar, chairman and chief strategy officer, HCL Technologies.

The company beat larger rivals TCS, Infosys and Wipro with a better-than-expected 1.4% sequential increase in its second-quarter dollar revenue even as concerns linger over a sustained growth momentum in some of its core businesses.

It reported 0.2% rise in consolidated net profit at Rs 1,920 crore for the December quarter. HCL Technologies, which follows July-June fiscal year, had posted a net profit ofRs.1,915 crore in the year-ago period, it said in a BSE filing in January, PTI reported .

Unlike the preceding three quarters’ results, when analysts were forced to cut earnings estimates, the December quarter was more or less in line with expectations. Still, they reaffirm the fact that growth has decelerated, and that HCL Tech’s impressive deal wins aren’t translating into commensurate revenues, said a Mint report .

Outlook: However, brokerage Kotak Institutional Equities has a reduce rating on HCL.

“We expect HCLT to report 2.5% growth in c/c and 2% growth. HCLT’s Ebit margin in the December quarter was impacted by 60 bps due to one-time cost associated with Chennai floods and investments in tools, software and assets. We expect Ebit margin to improve by 65 bps. Investor focus would be on (i) FY2017 demand outlook (HCL Tech to shift to March-ending fiscal year from June) (ii) growth prospects and investments in service lines (iii) focus areas in digital and how the company intends to catch up with competition and (iv) profitability trends after the disappointment in FY2016,” it said.

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