Subdued Q3 in store for IT cos this fiscal!

It’s likely that we will see the overall technology services market de-grow or see contraction. There will be a number of large deals announced, but these will be heavily discounted as there continues to be a growing gap between book to bill or bookings and revenue - Peter Bendor Samuel, CEO, Everest Group, tells Bizz Buzz

Bleak Revenue Accretion

• Low sequential rise in revenue & contraction
• Fall in overall headcount as IT cos shed employees
• Operating margin may be better than previous qtr
• Large deal bookings expected to remain strong
• However, large and mega deals may remain weak

Bengaluru: Indian IT firms are likely to post subdued revenue growth numbers with a fall in overall headcount in the third quarter ended December 2023 with more negative news becoming the order of the day.

According to analysts, operating margin will perform better than the previous quarter, while large deals bookings are expected to remain strong. However, revenue accretion from the large and mega deals is likely to remain weak like past quarters.

“It is likely that we will see the overall technology services market de-grow or see contraction. There will be a number of large deals announced, but these will be heavily discounted as there continues to be a growing gap between book to bill or bookings and revenue,” Peter Bendor Samuel, CEO of global consultancy firm, Everest Group, told Bizz Buzz.

“Operating margins have performed much better than revenue, mostly due to the ability of the technology services firms to reduce the sizes of their bench. Head count has been trimmed mostly through attrition and significant reduction in campus placements. Hence, operating margins have performed relatively well given the slowdown in growth. We anticipate that there is more room for cost reductions. Hence, we expect operating margins to continue to be robust for at least the next quarter,” he added.

The results season of the Indian IT services companies will kickstart from next week. Infosys is scheduled to announce its third quarter earnings on January 11. Most investors will be keenly looking at the commentary on growth prospects in coming quarters from companies’ management.

Earlier, brokerage firm JP Morgan has said in a report that FY24 will be a washout year for the Indian IT industry as overall decision-making and deal ramp-ups remain weak. Such tepid demand environment has prompted domestic IT firms to reduce their revenue guidance for the ongoing fiscal year. Infosys has trimmed its revenue guidance to 1-2.5 per cent from 1-3.5 per cent given earlier. Similarly, HCL Tech has brought down its growth guidance to 5-6 per cent for FY24 from 6-8 per cent given earlier.

HR experts are anticipating a fall in the total headcount in line with the second quarter. Top four IT firms- Tata Consultancy Service (TCS), Infosys, HCL Tech and Wipro- have cumulatively cut their workforce by about 38,950 employees in the first half of this fiscal.

Infosys saw it headcount shrinking by 7,530 in Q2 at 328,764, which is third consecutive quarter of decline for the company. Employee count of Tata Consultancy Services (TCS) remained subdued as the company saw fall in headcount by 6,333 to 608,985 employees by the end of September quarter. Similarly, Wipro’s headcount dropped by 5,015 to take its total headcount to 2,44,707. Apart from demand prospects in coming quarters, commentary on hiring, margin pressure and AI-led engagements will also be on the radar of investors.