IT majors optimistic on better bottom line

Renewed Hopes:

♦ TCS likely to see margin improving from Q2 onwards

♦ Infosys is betting on dynamic pricing

♦ Cost optimisation to get to Infy’sguided margin range

♦ Wipro sees margin tailwind from its acquisitions

♦ HCLTech also expects margin to pick up from Q2

♦ It mulls over whether to give a wage hike or not

Bengaluru: The IT biggies of Indian IT industry are confident of improving their operating margin profile and will be able to touch their guided range for FY25 on the back of improving revenue growth, employee pyramid and stable pricing environment.

All the top-four IT firms- TCS, Infosys, HCLTech & Wipro- have been able to maintain their operating margin profiles in the first quarter of FY25. Management of these companies said as revenue growth is likely to accelerate in the coming quarters, it will supplement operating margins. Moreover, resumption of fresher hiring will provide the lever to these companies to keep the costs at check, they said.

The market leader TCS said that pricing environment has not seen any notable change in recent quarters.

“The good thing for us is the biggest headwind, whichwe have in terms of wage inflation. We typically inch up from that (Q1) in the following quarters.In the short term, pyramid, productivity and utilization still would be the levers,” Samir Seksaria, CFO of TCS, had said during analyst call.

Operating margin of TCS stood at 24.7 per cent in the first quarter, a fall of 130basis points from the previous quarter. The company has said it saw 170 basis points impactowing to the wage hikes rolled out during the first quarter.

For Infosys, management said its cost optimisation measures & dynamic pricing models would help to touch its guided range of 20-22 per cent of operating margin for FY25.

“Value-based sellinghave (led to) improvement in realization. So, that’s one lever we do have (to improve margin). We did talk about hiring some freshers as we go through the year. So that would help in getting some better role ratios or better role mixes,” JayeshSanghrajka, CFO of Infosys, had said during analyst call.

The Bengaluru-headquartered firm saw improvement in its operating margin to 21.1 per cent in Q1 of FY25, up 100 basis pointsover the previous quarter.

Similarly, HCLTech management has said that the operating margin would improve in the coming quarters with the ER&D (engineering services segment) improving its performance.

“I don’t want to speculate too much about the wage hike timing and one-term (as), it is still a decision, which is work-in progress. So, that is a work-in-progress which we will decide during the quarter. But at an overall level, there is a certain quarter wise trajectory that we have had. If you look at the last couple of years, our Q1 is typically soft on the top line, which kind of translates to the bottomline EBIT as well. Then we have Q2, which is a pickup. Q3, like you rightly pointed out, is the peak,” PrateekAggarwal, CFO of HCL, Tech said.

The company has hinted that it is still mulling over wage hike decision, which if happens, will impact the margin negatively. HCLTech’s operating margin fell 50 basis points on sequential basis to 17.1 per cent duringthe first quarter.

For Wipro, both revenue acceleration and fresher onboarding would help in improving the margin, the company has said.

“Fixed price productivity, improvement in our pyramid (will help in improving margin). We did a good number (of fresher onboardingin Q1, and as we build our muscle on that, that will bring down the cost of delivery. There is also some synergies to be realized as acquired entities come into the larger Wipro fold administratively,” AparnaIyer, CFO of Wipro, said. Wipro posted an operating margin of 16.5 per cent, an improvement of 10 basispoints over the previous quarter.