Despite muted performance in Q1FY18, TCS, Wipro, Infosys met estimates

The top three Indian Information Technology companies, namely Infosys, Tata Consultancy Services (TCS) and Wipro, have declared their financial result for the quarter ended on June 30. 

As estimated all the three companies reported muted profits in Q1FY18. According to analysts, IT firms were expected to report muted financial performance for the April- June quarter, with margins coming under pressure on account of rupee appreciation and wage revision.

TATA CONSULTANCY SERVICES (TCS)

TCS reported a net profit of Rs 5,950 crore, a drop of 5.8% from Rs 6,318 crore during the same period last year. In the last quarter of FY17, the company had reported a net profit of Rs 6,622 crore. Hence, the net profit in Q1FY18 declined by 10% from Q4FY17.

The company's net income in Q1FY18 stood at Rs 5,945 crore, a decline of 5.9% on year-on-year basis and 10% on quarter-on-quarter basis. The revenue stood at Rs 29,584 crore. The operating margin during the quarter was 23.4%. 

According to a report by Ventura, TCS would commence reporting of the businesses under the new redefined verticals in few quarters down the line. Digital appears to be improving its share by close to 100 bps every quarter (close to 400 bps annually). 

While the size of the digital deals are increasing compared to the past, they are still not large enough to compensate the loss of profitability on account of the traditional services, the report said. 

The shares of the company closed at Rs 2490.90 per piece, up 1.87% or Rs 45.70 on BSE.

INFOSYS

Infosys reported a profit after tax of Rs 3,483 crores which represented a sequential QoQ decline of 3.33% and a YoY increase of 1.37%.

The company's total sales for this quarter, came in at Rs. 17,892 crores, a 0.15% sequential increase and 2.04% YoY increase. The operating profit (EBIT) for the recently concluded quarter amounted to Rs. 5375 crores and the EBIT margin stood at 30.04%.

Infosys kept its full year ending March 2018 revenue growth guidance at between 6.5% and 8.5% on a constant currency basis.

The analysts believe though Q1FY18 were in-line with estimates, but the company could face headwinds in Q2FY18 on account of wage hikes and planned hiring in US in anticipation of change in demand towards onsite business. 

Emkay in its report said that the company earlier deferred the wage revision cycle and now would implement the hikes effective from July’17, which would impact profitability by 100bps in Q2FY18 (average hikes would be lower but would award performance based higher wage hikes).

The shares of the company closed at Rs 979.90 per piece, up 1.12% or Rs 10.90 on BSE. 

WIPRO

Wipro reported a standalone net profit of Rs 2026.8 crore, a rise of just 0.9% as against Rs 2007.7 crore during the same period last year. In the fourth quarter of last fiscal, the company had reported a net profit of Rs 2303.5 crore. 

Wipro's gross revenue were Rs 13,630 crore, an increase of 0.2% on y-o-y basis. From the IT business, the revenues in terms of dollar were  $1,971.7 million, a sequential increase of 0.9% and 2.1% YoY.

Apart from financial result, the company also announced that the Board has approved buyback proposal of Rs 11,000 crore at a buyback price of Rs 320.

As per HDFC Securities, Wipro’s growth engine (ex-Digital) remains challenged, and as per management, revenue growth will return to industry level growth-rate by 4QFY18. Wipro’s growth will be challenged in 2QFY18. Two-month salary impact will keep margin under pressure. Buyback announcement of 343 million shares (7% of total shares) at a price of Rs 320 (~19% premium to CMP) will keep the stock buoyant.

The shares of the company closed at Rs 286.40 per piece, up 6.47% or Rs 17.40 on BSE. 

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