IT Services - Delay In Supply Normalisation May Cause A Perfect Storm In Q3: Motilal Oswal

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Motilal Oswal Report.Our conversations with managements in the IT Services space (as highlighted in our Q2 FY23 result preview) indicates sustained positivity around enterprise IT spends, despite a slowdown in corporate growth. This has led to a continuation in supply shortages (leading to margin pressures), despite record employee addition and wage hikes. As we head into a slower third quarter, we see additional risk from this shortage, given the difficulty in executing a hard shift to excess supply from scarcity mode. While we factor in levers to control costs (cuts in sub-contractor and variable pay, higher utilisation, freshers getting billable etc.) in our Q3 FY23 base case for margin expansion, we see downside risks to profitability as the industry may lag in cost optimisation measures due to the sudden shift. Margin pressures in a seasonally weak third quarter will lead to a perfect earnings storm and investor focus on near term pain at the cost of the long-term opportunity..Click on the attachment to read the full report:.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

IT Services - Delay In Supply Normalisation May Cause A Perfect Storm In Q3: Motilal Oswal

The double whammy of a demand slowdown and elevated cost may hurt earnings in Q3 FY23

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