Why TCS, Infosys, Wipro and HCL Tech can expect better earnings this year ⁠— here’s what’s working for each one of them

• The earnings of most Indian IT services companies in Q1 exceeded analysts’ expectations.
• Big wigs like TCS and Infosys are busy bagging big deals with a CEO change at Wipro and HCL Technologies’ focusing on consolidation.
• Motilal Oswal Securities has upgraded its earnings expectations for five out of seven Indian IT companies in the current financial year.

There are three things that keep an IT services firm going ⁠— new deals, strong profit margin, and the strength of its employee pool, both in terms of skills and numbers. India’s top tech firms like Infosys, HCL Tech and Wipro have shown promise on all these accounts. TCS fared just as well on everything except the margin.

Five of the seven Indian IT companies, analysed by broking firm Motilal Oswal, have seen an earnings upgrade of at least 10% based on the factors mentioned above.

New deals ⁠— TCS and Infosys beat others in bagging large contracts

Source: Company filings

For Infosys, the biggest scalp may be the Vanguard deal, which is yet to be finalised. It is reportedly going to be worth $1.5 billion. Sources told The Times of India that the scope of the work could last 10 years with the total contract value could exceed $2 billion. For TCS, some of the largest deals came from communication, media and information, according to the CEO Rajesh Gopinathan.

HCL Tech had a different experience. While it did close 11 new deals in the last three months, its clients preferred to opt for fewer or cheaper services. “We believe the primary factor for consistent pressure is due to a delay in both projects renewal and ramp-up of new projects,” said ICICI Securities.

Wipro had just 2 new deals in the same period but it is pinning a lot of hope on its new CEO, Theirry Delaporte, who is focused on ‘profitable growth’. He highlighted that cloud and other digital technology is expected to accelerate in the future and will be the key focus of the company.

Everyone managed to expand margins except TCS
Infosys, along with Wipro, Mindtree and L&T Infotech also witnessed sequential margin expansion. “TCS and Cyient have seen relatively stronger margin impact,” noted Motilal Oswal Securities.

Indian IT companies are looking to increase lateral hiring
Most Indian IT companies had decided to suspend hiring or go slow during April through to June. However, with uptake in demand and the inflow of freshers going slow, company’s have chosen to hire laterally.

“IT firms managed to shift to remote operations with agility, which has been well received by global clientele,” said Motiwal Oswal Securities. The virtual on-boarding of employees has allowed companies to agility to hire for roles in segments that are seeing the most demand.

Source: Motilal Oswal Securities

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