IT Services Q4 Results Preview - Weak Macro To Weigh On Earnings Growth: Motilal Oswal

Motilal Oswal Report

We estimate U.S. dollar revenue/ Indian rupee Ebit/ Indian rupee profit after tax to grow at 8.4%/15.9%/11.2% YoY in Q4 FY23E for our IT Services coverage universe which implies FY23E USD revenue/ Indian rupee Ebit/ Indian rupee PAT growth of 10.6%/11.4%/7.8% respectively.

Our IT services coverage universe is expected to deliver a median revenue growth of 0.8% QoQ and 9.2% YoY in constant currency terms in Q4 FY23. Major currencies appreciated against USD (euro up 5.2% and £ up 3.8%), which will provide tailwinds.

Ebit/PAT are expected to grow by 1.2%/3.0% QoQ, due to weak topline growth.

While the banking, financial services and insurance sector has been resilient for the last few quarters, recent industry developments have added to caution on its tech spending.

Though the Indian IT services firms do not have meaningful exposure to the affected U.S. regional banks, fears of a banking crisis is expected to impact near-term IT spending by banks and will be the key monitorable during the management commentary.

Apart from BFSI, hi-tech, manufacturing and retail are also muted in Q4. Clients have started to cut discretionary spend while increasing focus on cost efficiency work. IT services companies are seeing a shift to cost optimisation deals, along with increased vendor consolidation deals in the pipeline.

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