IT sector will see revenue growth in Q2FY25 but high expectations may lead to short-term disappointment: Report
Oct 08, 2024
New Delhi [India], October 8 : The Indian IT sector is expected to report decent revenue growth for Q2 FY25, but this might fall short of elevated market expectations, according to Motilal Oswal report.
Analysts anticipate a gradual recovery in client spending behaviour, with growth likely to concentrate on specific segments, such as U.S. banking.
However, while the healthcare and manufacturing verticals are set to drive growth, the overall results could disappoint those hoping for a stronger rebound.
The industry's outlook remains optimistic, but any significant recovery will be gradual. The sector is predicted to post aggregate revenue, EBIT, and PAT growth of 5.1 per cent, 5.0 per cent, and 5.3 per cent year-on-year (YoY), respectively, for the companies under coverage.
Leading players like Infosys (INFO), Tata Consultancy Services (TCS), and HCL Technologies (HCLT) are forecast to achieve revenue growth of 5.5 per cent, 5.9 per cent, and 4.9 per cent, respectively, for FY25 says the report
Mid-tier companies, particularly those with robust data engineering and ERP modernization offerings, are expected to outperform, with their growth sustained over the medium term.
For Tier-I companies, sequential revenue growth is projected to be between flat and 3.0 per cent in constant currency (CC) terms, with Infosys expected to lead the pack.
TCS is anticipated to report 1.0 per cent CC growth, while HCLT may see flat growth at approximately 1 per cent QoQ.
Among mid-tier players, Persistent Systems (PSYS) is likely to post the strongest QoQ growth at 4.5 per cent, driven by continued momentum in the healthcare vertical, followed by Coforge at 4.0 per cent.
In terms of margins, the sector is expected to maintain a range-bound performance. TCS could see a 20 basis point (bp) decline due to the BSNL deal ramp-up and talent investments, while Infosys may face an 80 bp margin contraction.
Margins at HCLT could see a slight increase, though wage hikes in the second half of FY25 may present challenges. Mid-tier players, such as Coforge and PSYS, may experience mixed margin performance, with wage hikes affecting Coforge by 100 bp but partially offset by optimisation measures for PSYS.
Infosys is expected to upgrade its guidance in line with consensus estimates, while the overall sector is unlikely to face any significant risk of downgrades. Cross-currency movements are projected to provide a 30-60 bp tailwind to most companies.
Among mid-tier players, PSYS and Coforge are expected to stand out due to their strong positions in high-growth sectors like BFSI and healthcare.
