Information technology companies have posted strong results for the second quarter of FY25, except Tata Consultancy Services (TCS). While Wipro and HCL Tech have posted strong Q2 FY25 results better than expected, Infosys has also posted good Q2 results with a better outlook but did not meet investors’ expectations. However, TCS fell short of expectations, with margins contracting, according to experts.
TCS Q2 Results Review
TCS reported a tepid 5% YoY rise in its net profit for the July-September (Q2) quarter as cautious trends seen in the last few quarters continued. The company saw a decent rise of about 8 per cent in its revenue, while its operating margin contracted slightly on a YoY basis.
“The Q2FY25 result of TCS fell short of expectations, with margins contracting. Despite the above-estimated revenue growth, the margins continued to get pressurised, likely due to their deep dive into the talent pool. The offset expected from the deferment in wage hike didn’t come through. While the discretionary spending was impacted in the quarter, cybersecurity, AI, cloud, and TCS Interactive continued to grow,” Sagar Shetty, research analyst at StoxBox.
With the expected rate cut in the US in the upcoming months, we expect a rise in discretionary spending, further improving the company’s revenue visibility. The key things to consider going ahead would be the management plans to achieve its margin guidance of 26-28% in FY25 and the likely shape-up of net headcount addition in the coming quarters. The company’s outlook on its order book and demand environment would also be key factors, he added.
HCL Tech Q2 Results Review
HCL Technologies has reported an 11 per cent rise year-on-year in its net profit to Rs 4,235 crore for the second quarter of FY25. The revenue from operations for India’s third-largest IT major during July-September 2024 rose 8.2 per cent to Rs 28,862 crore.
Shetty said, “HCL Tech reported healthy financial performance during the quarter, beating estimates on all fronts. The revenue growth was driven by key deal wins across verticals, product offerings and geographies, with the Telecommunications, Media, Publishing & Entertainment vertical recording a solid 61.2% YoY CC growth, while Financial Services continued to be under pressure due to State Street disinvestment. The EBIT margin also stayed within the guidance range of 18-19% driven by positive operating leverage in the ER&D business. A lower attrition rate further highlights easing concerns on the talent pool.”
We expect visible growth in H2FY25, with the impact of State Street receding. Going ahead, the management’s commentary on aspects like demand environment, TCV outlook, guidance for H2FY25 and attrition rate would be key factors to watch, he added.
Wipro Q2 Results Review
Wipro on Thursday reported a 21 per cent jump in its net profit to Rs 3,209 crore for the September 2024 quarter, on the back of higher spending by its clients in the US communications sector. Its revenue during July-September 2024 rose 1 per cent to Rs 22,300 crore.
“Wipro recorded solid financials during the quarter, beating the market estimates on all counts. The company was able to meet its expectations for revenue growth, bookings and margins due to strong execution. During the quarter, the company continued to expand its top account, ensuring sustainable revenue growth. The company witnessed growth in three out of four markets while experiencing a steady recovery in BFSI, Consumer & Technology and Communication verticals. The company was able to improve its margins due to operational improvement,” Stoxbox’s Shetty said.
Looking ahead, Wipro gave guidance of -2.0% to 0.0% in CC terms, indicating weak demand in the coming quarter. Overall, the company is pleased with its performance, delivering healthy growth across fronts. Commentary on discretionary spending expectations and pipeline & TCV will be watched closely, he added.
Infosys Q2 Results Review
Infosys has posted a 4.7 per cent rise in its net profit to Rs 6,506 crore for the second quarter ended September 2024. Its revenue during July-September 2024 increased 5.1 per cent to Rs 40,986 crore, compared with Rs 38,994 crore in the year-ago period.
“Infosys reported healthy financials during the quarter, surpassing its annual and sequential levels, but it did not meet the street estimates on EBIT and PAT front. The company reported healthy revenue growth on the back of large deal ramp-ups and good momentum in financial services. The margins remained intact, driven by continued benefits from value-based pricing and utilization despite higher employee payouts. The company also increased its revenue growth guidance from the higher and lower end, reflecting its optimistic demand outlook,” Shetty said.
Going ahead, the company seems positive about its capabilities to lead the market in Cobalt and generative AI with Topaz. With the highly expected rate cut rally going forward, we are positive about the company’s ability to secure large deals while focusing sharply on its margins. Management commentary on demand, vertical outlook, TCVs and pipeline would be key aspects to watch out for, he added.
Is the IT Sector Out of the Woods Now?
The information technology sector has remained bleak in the current financial year so far. Experts said the results now show a mixed trend in the sector and outlook for each company defers.
“IT companies have delivered mixed results compared to expectations in the second quarter of the current financial year. Infosys, Wipro, and HCL Tech have outperformed the market, while TCS’s performance has been somewhat muted. Attrition remains under control across the industry, and the total headcount has decreased slightly. The muted growth is primarily driven by slow growth in the BFSI sector, although other segments have shown positive trends. TCS and Wipro have also lowered their growth guidance, citing potential macroeconomic challenges,” said Yashovardhan Khemka, senior manager (research) at Abans Holdings.
Infosys has been a clear standout this earnings season, not only exceeding estimates but also raising its revenue forecast. The company’s total headcount has increased after a continuous decline over the past six quarters, indicating strong growth momentum, he added.
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