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Informist, Thursday, Feb. 27, 2025

 

By Arya S. Biju

 

MUMBAI – Despite Oct-Dec being a seasonally weak quarter for the information technology sector, IT companies that are part of the Nifty 200 index reported decent performance with more than half outperforming the sequential growth estimates for top line and bottom line for the sector.

 

Of the 13 IT companies in the 200-stock index, seven delivered better numbers than the 2% sequential net profit growth estimated for the sector. Of the six underperformers, Mphasis Ltd. was the only one to report a sequential rise in net profit. All the others saw their profits decline. Similarly, seven companies outperformed the estimated 1.1% sequential growth in revenue while six failed to meet the estimate. Among the six, KPIT technologies Ltd., Mphasis, and Wipro Ltd. reported sequential growth in revenue. The others reported a decline.

 

The aggregate top line of the 12 technology companies, excluding Oracle Financial Services Ltd. for which no estimates were available, rose 1.1% sequentially and 5.9% on year, against the estimates of 1.1% and 5.8%, respectively. The aggregate bottom-line growth of these companies was slightly better than expected, rising nearly 3% sequentially, compared with the 2.1% estimate, and 8.8% on year, higher than the estimated growth of 8%.

 

Coforge Ltd., HCL Technologies Ltd., and Persistent Systems Ltd. led the pack, beating both net profit and revenue estimates for the sector as well as for Nifty 200 companies. Tata Technologies Ltd.'s net profit growth surpassed Nifty 200 estimates but failed to beat the revenue growth estimate. 

 

Out of the 12 companies for which estimates were available, seven exceeded analysts' company-level expectation of top-line growth, while four fell short, and one was largely in line. On net profit, six companies exceeded company-level expectations, one was largely in line, and the remaining five missed estimates.

 

Sequentially, technology companies in the Nifty 100 and Nifty 200 showed stronger top-line growth than their Nifty 50 counterparts, while the sequential net profit growth was mixed. Mid-cap technology companies Coforge and Persistent Systems delivered industry-leading growth in top line and bottom line, respectively, for the quarter. In contrast, tech giant Wipro reported the lowest sequential revenue growth among its peers, and Mphasis reported the lowest sequential growth in net profit.

 

In terms of net profit margin, large-cap technology companies outshone their mid-cap peers. Mid-cap technology companies Coforge, LTIMindtree, Oracle Financial Services, Tata Elxsi, and Tata Technologies saw their net profit margins decline on year while all the IT companies in the Nifty 50 saw their net profit margins rise on year.

 

Among the 13 technology companies in the Nifty 200, Coforge led with an 8.4% sequential top-line growth, driven by robust organic growth and contributions from the acquired Cigniti business. The company's net profit for the quarter saw a sequential growth of 6.6% but fell 9.5% on year. Its net profit and earnings before interest, tax, depreciation, and amortisation margin for the quarter were hit by high-teen sequential growth in expenditure led by a 20% jump in other expenses and a 9.4% rise in tax expenses.

 

On the net profit front, Persistent Systems outperformed its peers with 15% sequential growth. The company's operating margin for the quarter was supported by better utilisation, improved operational efficiencies, reduced contractor costs and employee stock ownership programme expenses, and pricing benefits, PL Capital noted in its earnings review. The margin was also supported by a 50-basis-point cross-currency tailwind. Benefits from these margin levers were partly offset by the impact of furloughs, a lower earn-out credit reversal, and 99% sequential increase in cost of professionals. The company also saw double-digit growth in its top line, both sequentially and on year, driven by strong performance in its software vertical and a 35 bps contribution from its recent acquisitions.

 

In contrast, Wipro reported marginal top-line growth for the quarter, both sequentially and year-on-year, due to a sequential decline in revenue across most segments and geographies. Wipro's operating margin expanded 70 bps on quarter driven by improved execution. The margin improvement was supported by higher offshoring, a higher proportion of fixed-price deals, and reduced overheads, despite the impact of the two-month wage revision.

 

Tata Elxsi Ltd. was the biggest underperformer among its peers, reporting the highest sequential decline in revenue and second highest fall in net profit. The company's top line for the quarter was dragged down by marginal on-quarter growth in its software services segment, which contributes around 98% of its revenue, and also by 15% sequential decline in its system integration vertical. Further, the company's net profit and EBITDA margin saw a sequential decline driven by a 100 bps impact of salary increases and cross-currency headwinds. The net profit was also affected by 6% sequential rise in other expenses.

 

At the overall level, reduction in staff costs helped IT companies keep their expenses in check for the quarter. Employee benefit expenses, which accounted for more than half of the total expenditure, decreased slightly on quarter, resulting in the sequential growth in total expenditure being kept below 1%. Of the 13 technology companies, seven saw a sequential fall in employee benefit cost, while the rest saw an on-quarter increase. Within this, Persistent systems led with a 27% sequential fall driven by an increase in attrition rate in the quarter.

 

HUMAN RESOURCES

The December quarter saw a positive trend in hiring for IT companies like HCL Technologies, Infosys, Coforge, LTIMindtree, Oracle Financial Services, Tata Elxsi, and Persistent Systems, while Tech Mahindra, Wipro, Tata Consultancy Services, Mphasis, Tata Technologies, and KPIT Technologies reduced their headcount. Management commentary indicated that more companies were planning to hire in the March quarter. However, KPIT Tech has indicated that it will adopt a more selective hiring approach, while LTIMindtree noted that hiring will be a function of demand.

 

Despite the headcount additions, attrition rates of these companies increased on a trailing 12-month basis, barring Tata Elxsi and LTIMindtree. Of the seven companies that saw headcount addition in the quarter, Oracle Financial Services saw the highest sequential rise in attrition rate of 100 bps, while Coforge had the lowest sequential increase of 20 bps. LTIMindtree and Tata Elxsi were the only companies to report a sequential decline in attrition rate. Tata Consultancy's attrition rate remained largely unchanged.

 

Mphasis posted the lowest utilisation rate of 75% in the December quarter, among the companies for which utilisation data are available. This was primarily attributed to the reduction in the company's billable headcount, due to hiring of freshers, brokerage Elara Securities said in an earnings review. Overall utilisation rates of IT companies ranged from 75% to 88% in the quarter.

 

Of the seven companies for which data are available, four saw sequential contraction in utilisation rates ranging from 70 bps to 230 bps, while the rest saw on-quarter increase ranging from 40 bps to 260 bps. Tata Technologies had the highest utilisation rate of 88% among its peers, reflecting an on-quarter increase of 40 bps, driven by the company's efforts to improve workforce efficiency by balancing hiring of full-time employees and using outsourced resources, the management said in a post-earnings analyst call.

 

DEAL WINS

Deal win momentum improved sequentially for most IT companies in the quarter for which total contract value data are available. Wipro and Coforge were the exceptions. The sequential growth in total contract value of these companies ranged from 2.6% for Infosys to 70% for Mphasis. The total contract value of deals wins of Mphasis for the quarter was supported by a sustained focus on proactive deal wins. The company's deal wins in the quarter were broadbased across verticals, client pyramid, and archetypes. In the case of Infosys, the overall total contract value was balanced with a healthy mix of small and large deals.

 

The following table shows the performance of the 13 companies in the IT sector in the Nifty 200 index vis-a-vis the consensus estimate for each company as well as the consensus estimate for the IT sector and the Nifty 200:

 

		Nifty 200 Q3 PAT QoQ growth 8.50%	Nifty 200 Q3 PAT QOQ growth consensus estimate 5.30%					Nifty 200 Q3 revenue QoQ growth 3.90%	Nifty 200 Q3 revenue QoQ growth consensus estimate 3.54%
Company	PAT beat analysts' estimate	Adjusted QoQ PAT growth %	Adjusted QoQ PAT growth estimate %	PAT beat sector estimate	PAT beat Nifty 200 estimate		Revenue beat analysts' estimate	Revenue QoQ growth %	Revenue QoQ growth estimate %	Revenue beat sector estimate	Revenue beat Nifty 200 estimate
Coforge	YES	6.58	32.69	YES	YES		NO	8.36	5.74	YES	YES
HCL Technologies	NO	8.41	7.49	YES	YES		YES	3.56	4.00	YES	YES
Infosys	YES	4.61	3.70	YES	NO		YES	1.90	0.61	YES	NO
KPIT Technologies	YES	-8.23	-4.88	NO	NO		NO	0.44	0.16	NO	NO
LTIMindtree	YES	-13.24	-10.60	NO	NO		NO	2.42	1.99	YES	NO
Mphasis	YES	1.06	-1.97	NO	NO		YES	0.71	-0.54	NO	NO
Oracle Financial Services Software	N/A	-6.30	N/A	NO	NO		N/A	2.47	N/A	YES	NO
Persistent Systems	YES	14.77	8.03	YES	YES		YES	5.70	4.25	YES	YES
Tata Consultancy Services	NO	3.95	4.07	YES	NO		NO	-0.45	0.30	NO	NO
Tata Elxsi	NO	-13.26	-10.08	NO	NO		NO	-1.67	2.66	NO	NO
Tata Technologies	YES	7.13	3.11	YES	YES		YES	1.61	-0.01	YES	NO
Tech Mahindra	NO	-21.35	-14.85	NO	NO		NO	-0.21	0.41	NO	NO
Wipro	YES	4.52	-4.74	YES	NO		YES	0.08	-0.32	NO	NO

 

 

The following table shows the profit margins of the 13 IT companies that are a part of the Nifty 200: 

 

	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
Nifty 200	11.87%	11.51%	11.37%
IT Sector	15.95%	15.12%	15.71%
Company	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
Coforge	6.49%	10.24%	6.60%
HCL Technologies	15.36%	15.29%	14.67%
Infosys	16.30%	15.73%	15.87%
KPIT Technologies	12.65%	12.36%	13.85%
LTIMindtree	11.23%	12.96%	13.26%
Mphasis	12.01%	11.19%	11.97%
Oracle Financial Services Software	31.56%	40.62%	34.51%
Persistent Systems	12.18%	11.45%	11.22%
Tata Consultancy Services	19.35%	18.25%	18.53%
Tata Elxsi	21.19%	22.58%	24.02%
Tata Technologies	12.80%	13.20%	12.14%
Tech Mahindra	7.40%	3.90%	9.39%
Wipro	15.03%	12.13%	14.39%

 

(Note: Analyst estimates for each index group are derived from estimates for companies part of the index)

 

End

 

Data compiled by Vinod Bhovad

Edited by Rajeev Pai

 

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