Q4FY21 is expected to be another strong quarter for Indian IT companies. The strong topline growth in Q2FY21 and Q3FY21 will help the industry for double-digit growth in FY22E.

Indian IT Industryis likely to witness revenue growth of 2.0%-5.0% QoQ in Constant currency terms for Q4FY21. Growth will be led by ramp up of several large deal wins and consolidation of acquisitions for some players. Growth commentary is likely to stay strong due to strong order bookings. Profitability for the quarter is likely to decline for most IT players due to wage hikes.

Company Net Sales (in Rs. Cr.) Var Profit After Tax (in Rs. Cr.) Var
Mar-20 Dec-20 Mar-19 YoY QoQ Mar-20 Dec-20 Mar-19 YoY QoQ
TCS 43633 42015 39946 9.2% 3.9% 9396 8701 8049 16.7% 8.0%
Infosys 26647 25927 23267 14.5% 2.8% 5313 5197 4321 23.0% 2.2%
HCL Technologies 19854 19302 18587 6.8% 2.9% 2748 3977 3172 -13.4% -30.9%
Wipro 16039 15670 15711 2.1% 2.4% 2549 2968 2326 9.6% -14.1%
Tech Mahindra 9683 9647 9490 2.0% 0.4% 1253 1310 804 55.9% -4.3%
L & T Infotech 3238 3153 3012 7.5% 2.7% 504 519 427 18.1% -2.8%
Mphasis 2523 2474 2346 7.5% 2.0% 340 326 353 -3.7% 4.4%
Mindtree 2126 2024 2051 3.7% 5.1% 306 327 206 48.4% -6.3%
L&T Technology 1448 1401 1447 0.1% 3.4% 202 186 205 -1.4% 8.5%
Persistent Systems 1099 1075 926 18.6% 2.2% 127 121 84 51.5% 5.0%
Cyient 1077 1044 1074 0.3% 3.1% 112 95 45 147.8% 17.4%
Source – Phillip Capital Research, Bloomberg Quint, EWL Research, Dolat Capital

Deal Wins and Wage Hikes in Q4FY21

Company Wage hike Roll out New deals Wins from Jan to Mar 2021
TCS 6-8% Mar-21 Vodafone, ThreeUK, Skanska
HCL tech ₹700 crore bonus Feb-21 Airbus, Tenneco
Infosys 100% variable pay, salary increments Jan-21 Siemens, Toyota, Newmont, Google
Wipro Wage hikes for junior employees Jan-21 Capco, Ampion, Telefonica, Estee Lauder
Tech Mahindra Salary hike Jan-21 Telefonica, Perigord
Source – Media Reports

TCS –TCS is expected to report strong growth of 9% YoY in Q4FY21 as compared to 7.2% YoY revenue growth in Q4FY20. TCS has already absorbed wage revision in the previous quarter and will accordingly report EBIT margin increase.

EBIT Margins are expected to increase by 60bps qoq led by positive onsite-offshore mix and strong growth

Watch out for:IT Industry demand outlook for FY22, Deal TCVs and pipeline, pricing scenario, and outlook on BFSI segment

Infosys –Infosys is also expected to deliver a top YoY growth backed by strong deal wins (USD12b in 9MFY21, up 63% YoY. Margins are expected to decline by 100bps QoQ on wage hikes offset by higher offshore mix.Infosys Expected to guide FY22 Revenue growth of 12-15% and EBIT Margin in the range of 22-24 per cent

Watch out for:FY22 guidance update, Deal TCVs and pipeline, Pricing scenario, attrition and outlook.

HCL Tech –Margin to be significantly below Q3FY21 on one-time bonus of Rs.700 Crore, wage hike, and investment in S&M. HCL Tech announced Rs 700 Crore one-time bonus to celebrate $10bn revenue milestone (margins impact of 360bps).  Margins excluding one-time bonus are expected to decline by 190bps QoQ to 21% on wage hike impact and weakness in product business.Expect FY22 growth guidance of 11-1% and EBIT Margin in the range of 20-21 per cent

Wipro – Margins are expected to decline 140bps QoQwith two-month impact of Wage hikes, senior management hiring offset by strong growth

Watch out for: Any guidance for FY22, Deal wins and pipeline commentary, Demand and pricing scenario.

L&T Infotech – Growth to be boosted by higher pass-through revenues (seasonality in Q3). Margins expected to largely remain flat on a QoQ basis

Watch out for – Commentary on FY21 outlook, large deal wins pipeline and conversions and deal win ramp ups.

L&T Technology – Margins are expected to expand by +90bps QoQ led by revenue growth, cost optimization measures and absence of wage hikes

Tech Mahindra – Margins expected to largely remain flat on QoQ basis. No wage hikes announced by Tech Mahindra in FY21

Persistent Systems – Margins are expected to decline marginally due to one month of wage hikes and strong hiring in last quarter. Deal pipeline is healthy and order book is strong for the next couple of quarters.

Watch out for: TSU revenue growth, EBIT margins outlook, deal win & pipeline commentary and IP business outlook

Top Picks: TCS and Infosys, L & T Infotech and Tech Mahindra                 

Source – Phillip Capital Research, Media Reports

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