Q3 numbers mixed bag for top four IT players

Pune: The third quarter results of the top Indian IT services players have been a mix bag with many surprises. The October-December quarter is generally a slow quarter for the sector still saw players such as Infosys and HCL Technologies showing robust growth, whereas TCS that has been reporting trail blazing numbers for a few quarters reported subdued numbers.

HCL Technologies, that has performed the best among the top four players, reported a growth of 4 per cent in its US dollar revenues and 6.2 per cent on constant currency basis, with growth drivers coming from both its services and infrastructure management services and engineering. The numbers were especially good the company’s performance had been decelerating in the last few quarters. The 6.2 per cent growth was the best numbers in the last 16 quarters.

In case of India’s second largest services provider Infosys, it took the markets by surprise as its reported one of the best volume growth at 4.2 per cent in a seasonally weak quarter. Volume growth was one of the best in three years.

The biggest surprise, from Infosys, came as it maintained its full-year guidance of 7-9 per cent (on constant currency). The street was expecting that the company will reduce its guidance or maintain it at the lower end of the guidance due to currency volatility and traditionally softer third quarter.

India’s largest services provider Tata Consultancy Services (TCS) too threw a surprise to the street by reporting one of the most subdued volume growth numbers. Volume growth for the company came in at 0.4 per cent but the company said realization for the quarter grew 2.3 per cent. TCS third quarter numbers though were in line, it did not have any surprise element.

Despite variation in numbers among the top four players, the management commentary across companies was same. All sounded positive on growth for CY15. The other common factor in management commentary was the uptick in clients spends in the digital segment.

“In their recent 3QFY15 post results commentary, Wipro and TCS management highlighted that the demand environment in the US is being driven by digital technologies. Client engagements are also now becoming more strategic and long-term in nature, according to management, which indicates the strength of demand in this space, in our view. This is now highlighted by the bullish commentary from IBM and SAP, which have reported strong growth in revenues from digital technologies in the Dec-14 quarter,” said Bhuvnesh Singh and Hitesh Das of Barclay’s Equity Research in their report.

The other common growth factor in terms of growth during the quarter and the future momentum was Europe. Across companies, Europe was the growth driver during the quarter. In case of TCS, Continental Europe grew 4 per cent, at HCL Technologies Europe grew 7.2 per cent.

Despite the variation in numbers, analysts tracking the sector too are bullish about future growth. “We maintain our constructive outlook on IT services on the back of strong hiring trends, increased outsourcing from Europe, improving US economy, trend towards digital technologies and a stable large deal market. All these factors indicate that growth for 2015 should be similar to that in 2014, even though macro fluctuations might weigh on sentiment,” said Atul Goyal and Vibhav Dhasmana, equity analyst from Jeffries Equity Research India.