TCS, Infosys and HCL Tech will show a good quarter but Wipro’s earnings will outshine them all — here’s why
- Analysts expect the growth momentum in the IT services sector to continue on account of large deal wins and demand for digital transformation.
- Infosys, TCS, Tech Mahindra and HCL Tech are expected to report a revenue growth anywhere between 3.5% to 5.5% for the period of April-June 2021.
- However, Wipro’s topline is likely to stand out among the top-tier software exporters from India, thanks to the Capco acquisition
*Source: Axis securities
|Company||Growth estimate*||Share price change since Feb end 2021 to June 2021|
TOP VIDEOS FOR YOUA big reason for Wipro’s outperformance may be the $1.45 billion acquisition of Capco, the largest ever buyout by the Bengaluru-based company.
AdvertisementThe shares of Wipro have led the IT pack ever since the new chief executive officer (CEO) Thierry Delaporte took charge in June last year. The company made about $2 billion last year from IT services and if Capco delivers the same amount of revenue as it did last year, it could add another $700 million to Wipro’s topline. That’s a 35% bump up a year straight away.
Expectations are built up in the stock that has gained about 30% since the Capco deal was announced in early March, and closed in April.
There is also a lot of apprehension. “The execution risk is further aggravated by a weak growth performance from Capco over the last two years – even after adjusting for the drag due to COVID-19,” said Motilal Oswal in its report dated March 4.
“We’re guiding revenue growth of 2% to 4% in the first quarter, outside of Capco and Ampion,” Delaporte had said during the earnings call in April. Wipro has acquired Ampion, an Australia-based provider of cyber security, devops and quality engineering services. The move will strengthen its commitment towards clients and stakeholders in Australia and New Zealand (ANZ). The acquisition will close in the quarter ending June 30, 2021.
It’s boom time for all tech companies
For the rest of the top five IT services majors, the growth is likely to continue on the same trend seen since the pandemic broke out. “IT spending from North America and Europe has gained momentum and demand for digital transformation has increased exponentially,” Axis Securities said in a report dated July 6.
|Company||New deals from April to June 2021|
|TCS||Proximus, Ericsson, Virgin Atlantic, Alcatel-Lucent, Commercial Bank of Kuwait|
|Infosys||ArcelorMittal Europe, Britvic, Archrock|
|HCLT||UD Trucks Corporation, Hitachi ABB Power Grids, McLaren Health Care|
|Wipro||Bristol Water, Transcell Oncologics, Levi Strauss & Co|
|Tech Mahindra||Pret A Manger|
However, wage hike and rising attrition since the start of the year may dent operating margins of IT companies. Several IT companies have given second salary hikes to eligible employees in a calendar year 2020 as initially promotions had been deferred on account of the pandemic and business downturn.
In the last one year, Nifty IT (the index of tech stocks) showed gains of 81% as compared to the benchmark Nifty50’s 46%.
AdvertisementThese are the estimates for topline growth for the sector.
Growth estimates are in comparison to the earnings for the quarter ended June 2020.
|Broking firm||Apr-June average growth estimate for tier-I IT companies|
|Maybank Kim Eng||5.30%|
|BOB Capital Markets||4.20%|
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