Infosys, Wipro show strong sequential growth in Q2 dollar revenue

Infosys and Wipro delivered better than expected sequential growth in dollar denominated revenue for the September quarter. The difference in their performance was on the front of profitability and the total contract value of new deals. While Infosys disappointed on these parameters, Wipro surpassed analysts’ estimates on profits, profitability and also reported a revival in new deals. In that sense, Wipro’s performance was well rounded.

Now that the country’s top four IT exporters have delivered their respective second quarter numbers, a common thread that binds them together is the upward trend in the top line. Each of the four companies reported a sequential growth in reported dollar denominated revenue for the September quarter after a gap of six quarters.

The last time it had happened in the December 2022 quarter. The uptick indicates a gradual pick up in the project ramp ups after a slower pace of execution in prior few quarters. While the IT companies were booking new orders, the delay in ramp ups was affecting their top line growth in the previous quarters.

Agencies

The improving trend is also captured in the year-on-year movement of the trailing 12-month (TTM) revenue. The incremental TTM revenue for TCS, Infosys and HCLTech started inching up in the September quarter. After peaking in the March 2022 quarter, it gradually declined in subsequent quarters up until the September 2024 quarter. In addition, while Wipro continued to report a drop in the TTM incremental revenue even in the latest reported quarter, the extent of the fall reduced to $518.8 million from $550 million in the previous quarter.

Another trend is the sequential rise in the employee attrition rate. Each of the four companies reported a 10-40 basis points sequential increase in attrition rates. While it is too early to predict whether it would continue in subsequent quarters, it may indicate a gradual momentum in hiring activities after a lull for the past few quarters. In addition, TCS and Infosys reported sequential net employee addition in the September quarter.

Barring Infosys, other companies showed a sequential uptick in new deal wins. Wipro staged a remarkable recovery – Its TCV for new deals increased to $3,561 million from $3,284 million in the prior quarter while large deals TCV jumped to $1,489 million from $1,154 million.For Infosys, after a strong order flow of above $ 4 billion in the previous two quarters, the TCV for large deals was at $ 2.4 billion. Nevertheless, the company has increased the FY25 constant currency revenue guidance to 3.75-4.5% growth from earlier 3-4% growth reflecting a positive top line momentum. While these top IT exporters have started showing improved rate of project execution, their management commentaries continued to exude cautious optimism. Clients continue to focus on improving cost efficiency, which may weigh on their decision making when they plan annual IT budgets in a couple of months. Given these factors, IT stocks are expected to show a range bound movement in the near term.



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