Decoding IT giants Q1FY24 earnings

The NSE Nifty 50 and BSE Sensex indices have hit fresh highs, making investors jump for joy. Nifty 50 index rose by 0.21% to reach 19,753.05. S&P BSE Sensex gained 0.24% and reached a whopping 66,752.84.

The Sensex has skyrocketed, gaining a whopping 3,600 points in just 30 days, crossing the 67,000 mark. What’s fueling this impressive growth? Here are the main drivers:

• Strong inflows from foreign portfolio investors, 
• Inflation eases in both India and the US,
• Indications from the US of an end to the rate-hike cycle.
• Global economic resilience and robust quarterly earnings reports have also played a part in supporting the market rally.

The IT sector is buzzing with the giants of the industry unveiling their Q1FY24 earnings. Let’s get the scoop on the latest numbers and trends in the industry. 

What’s going on in the IT sector?

The Indian IT sector has been bracing for a slowdown, and the impact of organisations cutting down or cancelling IT spending is evident in the Q1FY24 numbers. Most companies in the sector are expected to report flat quarter-on-quarter growth in constant currency revenues.

Over the past two decades, the IT sector’s profit pool share has ranged from 5% during the dot-com bubble bust to 12%-13% before the disruption caused by the COVID pandemic.

You may also like: What do the GST council’s decisions mean for your wallet?

IT stocks are under pressure due to multiple factors

• Large banks’ constrained IT budgets have dampened growth prospects, with expectations of -1.7% to 0.6% quarter-on-quarter growth for large-cap IT services players.
• The US-centric nature of the IT business has been challenging, especially with mid-sector banks facing troubles.
• Layoffs in the US have put additional strain on IT stocks.

Let’s crunch the numbers and discover what’s driving these tech powerhouses!

Q1FY24 earnings: A comparative analysis of IT giants

The Q1FY24 earnings season kicked off with IT majors Tata Consultancy Services (TCS), HCL Technologies, and Wipro unveiling their June quarter results. Let’s delve into the numbers and see how these tech players fared.

TCS  Q1 results: Key figures

TCS witnessed a 16.84% rise in consolidated net profit compared to last year’s corresponding period. However, on a QoQ basis, TCS’s net profit declined by 2.8%, similar to rival Wipro.

The company’s revenue from operations in the June quarter showed robust growth:

• Revenue growth in constant currency terms: 7%

• Dollar revenue: $7,226 million (grew by 4%).

TCS board of directors declared an interim dividend of ₹9 per equity share.

TCS Regional Performance

Wipro’s Q1 results: Key figures

Wipro’s revenue from operations showed a growth of 6.05% from the previous fiscal’s first quarter. Nevertheless, there was a 1.57% sequential decline in revenue from operations.

HCL Tech’s Q1 results: Key figures

HCL Tech reported a 7.6% YoY growth in consolidated net profit but saw an 11.27% decline in profit after tax compared to the previous quarter. Employee turnover decreased to 16.3%, and the company hired 1,597 freshers. 

HCL Technologies’ board of directors also declared an interim dividend of ₹10 per share for FY24. 

While the Q1 numbers for these IT giants may not have been exceptional, analysts and experts foresee a reversal of the trend in the coming quarters. 

Also read: IOC rights issue 2023: All you need to know about Rights Issue of shares

Here is what analysts projected:

Wipro’s Q1FY24 expectations: Analyst projections

TCS Q1FY24 expectations: Analyst projections

Bagging big deals

TCS continued its strong momentum in securing large deals, with orders worth $10.2 billion in Q1FY24, reflecting a 24.4% YoY growth.  The company’s order book for the April-June quarter crossed the $10 billion mark, compared to the $8.2 billion reported a year ago. Clients are prioritising cost optimisation, vendor consolidation, and integrated operations.

Wipro secured 55 large deals with a total contract value (TCV) of $3.9 billion, marking a remarkable 66.5% YoY growth. The company demonstrated strong cash conversion, with ₹110.8 billion, equivalent to 114.9% of its net income. Total bookings surpassed $4.1 billion, reflecting a 29% YoY growth for the quarter.

HCL Tech’s total bookings for Q1FY24 reached $3.7 billion, with large deal bookings at $1.2 billion, marking a 9% YoY increase.

Infosys: The awaited Q1FY24 results

Infosys secured a five-year deal worth $2 billion with an undisclosed client, marking its third major deal announcement. The agreement focuses on AI and automation-led development, modernisation, and maintenance services.

The company’s Q1FY24 earnings are expected to be subdued due to a soft demand outlook. Analysts predict a 0.8% quarter-on-quarter growth in constant currency terms for Q1FY24.

Also read: The best banks in India: Leading the way in finance

What’s next for the IT players?

Experts believe that while Q1 numbers may be muted, the IT sector is expected to bounce back in the coming quarters. Factors such as deal conversions, cost optimisation, and the shifting demand landscape will influence future growth. Analysts anticipate a relatively soft Q2 for the IT sector, with a pickup in growth expected in the second half of FY24.

Investors eagerly await Infosys’ Q1FY24 results, which are set to be released on July 20. Infosys might narrow its revenue growth guidance for FY24 to 4-6% in constant currency terms.

The results of these tech players have been mixed-to-muted so far, but don’t lose hope just yet. Keep an eye on the upcoming quarters for potential turning points.