Indian IT firms may report 5-9% contraction in revenues for June quarter

Hospitality and travel, as well as manufacturing and retail, are the segments likely to see maximum hit

Indian IT services firms are likely to report 5-9 per cent contraction in revenues for the June quarter, even though deal pipeline is expected to remain firm.

According to industry analysts, margin will also face pressure, despite the various cost-cutting measures. The first quarter will see maximum impact of the pandemic on the profit and loss (P&L) account front, making it the worst quarter in the last three financial years.

“Most top-tier IT firm will see a 5-9 per cent drop in revenues in Q1 sequentially. The revenue contraction is mostly on account of demand deterioration and lower billing,” said Sanjeev Hota, head (research) at Sharekhan.

“Margins will come under pressure, though the decline will not be too sharp on account of the savings due to reduction in discretionary expenses, lower travel cost, and freezing of wage hikes. Further, the 4 per cent depreciation in the rupee, over the last three months, will lend some support,” he said.

According to market analysts, TCS and Infosys will see sequential revenue contraction of 5-6 per cent, while Wipro and HCL Tech could see an 8-9 per cent fall in their top line.

Among verticals, travel and hospitality, as well as retail and manufacturing, are the segments likely to see the maximum impact. However, firms with a higher share of BFSI (bank, financial services and insurance) and telecom will witness less impact. Notably, most big IT firms have above 35 per cent of their revenues coming in from the BFSI segment.

As regards the deal pipeline, market experts said it remains robust, though most of it is artificial inflation. “Most deals are not moving at the usual pace and are facing delays, leading to the slow conversion rate. That’s the reason firms are likely to report a higher deal pipeline. However, the growth is not organic,” said Pareekh Jain, founder of Pareekh Consulting.

He also said that most engineering services firms were likely to see a lower double-digit dip in revenues during the first quarter. Earlier, L&T Technology Services (LTTS) and Tata Elxsi had indicated a decline in revenues.

Like the previous quarter, IT firms are not expected to provide any growth guidance for FY21, citing lack of visibility, said Jain.

Most market experts, however, said that the attrition rate at most IT firms would reduce during the first quarter.

“We see voluntary attrition reducing in the first quarter, though involuntary attrition may rise on the back of performance appraisals. The overall headcount is likely to remain stable or even fall in Q1, as compared to the previous quarter,” said another Mumbai-based analyst.