IT firms to post steady revenue growth near pre-covid levels in Q1.

Tier-1 IT firms should see organic growth of 1.4-4.0 per cent in constant currency quarter over quarter, with Infosys Ltd and Tech Mahindra Ltd leading the field. Tier-2 enterprises should see organic growth in a similar range.

According to an ICICI Securities analysis, Indian IT companies are anticipated to show steady revenue growth near pre-covid levels in the first quarter, which ended in June, which is seasonally robust.

Tier-1 firms to post 1.4-4.0 per cent organic growth in constant currency quarter over quarter, with Infosys Ltd and Tech Mahindra Ltd leading the pack. Tier-2 enterprises should see organic growth in a similar range.

According to the research, “Covid second wave impact on delivery will be modest depending on delivery location and fungibility of bench resources.”

Wage increases, whether total or partial, will be a significant margin drag. According to the analysis, high utilization, a steep increase in attrition, and hiring constraints on campus should all result in supply-side cost pressures.

On a sequential basis, the brokerage company anticipates tier-1 and -2 EBIT margins to decrease 10-200 basis points and 0-350 basis points, respectively. Companies like Tata Consultancy Services Ltd (TCS), Tech Mahindra, Coforge Ltd, and L&T Infotech Ltd will feel the full brunt of the salary increase. Wipro Ltd, Mphasis Ltd, L&T Technology Services Ltd, and Cyient Ltd would all be affected somehow.

The street is already forecasting 16.5 per cent annual revenue growth in constant currency for Infosys in FY22, vs guidance of 12-14 per cent. “It will be disappointing if there is no major upgrade (at least 1%).” The sector’s growth and margin outlook should stay relatively constant, according to the research.

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