The forthcoming quarterly results for the December quarter are expected to reveal muted financial performances from Indian IT services companies, grappling with persistent challenges in IT services demand exacerbated by unexpectedly high furloughs in Q3FY24.
The IT sector has faced sustained struggles over recent quarters, with key Western markets experiencing weakness amid inflationary pressures, rate hikes, and economic uncertainties. Industry experts note that the extension of deal closure timelines during Q3, primarily attributed to a surge in furloughs beyond expectations, is likely to result in subdued revenue for Indian IT firms.
Motilal Oswal Financial Services, a leading brokerage firm, highlights the impact of seasonality on revenue growth and margin performances across both tier-1 and tier-2 IT companies. Despite a slight improvement in sentiment, there has been no substantial change in spending patterns, particularly with discretionary spending remaining on pause for enterprises.
Motilal Oswal projects a median revenue growth of 0.7 per cent quarter-on-quarter (QoQ) and 2.5 per cent year-on-year (YoY) for its IT services coverage universe in Q3FY24. For tier-1 companies, the expected revenue growth is estimated to range from -2.7 per cent to +4.5 per cent QoQ in constant currency terms, while tier-2 players are anticipated to experience growth within the range of -4.4 per cent to +3 per cent QoQ in constant currency terms.
The adverse currency movements, notably in EUR/GBP (-1.2 per cent/-2 percent), are anticipated to contribute to a slowdown in reported growth. Motilal Oswal underscores that despite muted revenue growth and revised compensation for select entities in Q3, the weakening Indian rupee is expected to provide some support. The brokerage firm predicts a flat dollar revenue YoY, with INR EBIT (earnings before interest and taxes) and INR PAT (profit after tax) declining by 4 percent and 2 percent YoY, respectively, in Q3FY24.
Additionally, Motilal Oswal expects a moderation in total contract values (TCVs) for deals, influenced by the high base in Q2 and the impact of furloughs in Q3.
