TCS beats estimate in Q1FY19; will rivals Infosys, Wipro follow suit?

When we talk about IT sector's financial performance, almost every investor will be keeping an eye on earnings of tech-giants like TCS, Wipro and Infosys. Tata Group’s IT subsidiary TCS has showcased its first quarter of FY19 performance, and the result has thrown a big challenge for Infosys and Wipro. Tata Consultancy Services surpassed analysts estimates in both top-line and bottom-line growth during Q1FY19. Following this strong performance of TCS, the company has crossed a fresh high of Rs 1,991 per piece just few paisa away from earmarking Rs 2,000-mark. While TCS is becoming favorite of investors, the share price of Infosys and Wipro are not keeping pace. 

At around 13:39 hours, TCS was trading at Rs 1,987 per piece above Rs 110 or 5.86%. The company has touched a 52-week high of Rs 1,991 per piece. 

Meanwhile, Infosys was trading at Rs 1,312.70 per piece above just by 0.78%, whereas Wipro was trading at Rs 272.80 per piece up by 0.63%. 

It is quite clear that investors have less faith in earnings of Infosys and Wipro if compared with Wipro. Infosys would be next to announce it’s first quarter performance on July 13. 

Here’s how analysts expect about Wipro and Infosys earnings in Q1FY19. 

Infosys

Vibhor Singhal  and Shyamal Dhruve analysts at Phillip Capital says,”: +2.8% qoq growth in CC (+0.6% growth in 4Q) and 100bps negative cross-currency impact resulting in reported revenue growth of +1.8%. EBIT margins to contract 100bps qoq, due to wage hike and visa cost. We expect the company to maintain its revenue growth guidance for FY19 (6.0-8.0% CC growth), with a brighter outlook for dealflow.”

Analysts at Edelweiss Financial Services, “We estimate Infosys to post 3.2% growth QoQ in constant currency, impacted 90bps by cross currency (cc) headwinds, implying 2.3% growth in USD. All eyes will be on growth in digital services, BFSI & retail commentary, deal wins and large deal renewals during the quarter.” 

In Edelweiss views, “Margin is likely to decline 70bps QoQ on account of wage hikes (120bps), higher visa costs (50bps) and higher investment in sales & digital, which will be partially offset by INR depreciation and operational efficiencies. We expect management to maintain FY19 revenue growth and margin guidance.”

Wipro 

The duo at Phillip Capital said, “ IT services to report CC revenue decline of -1% qoq (close to mid-end of the guidance of -2.3-0%). Negative cross-currency impact of 100bps. EBIT margins to expand 220bps qoq due to absence of one-off client insolvency issue and the one-off charge in HPS (-160bps impact in Q4). We expect moderate guidance for Q2FY19 – with E&U and healthcare segments remaining weak and impact of sale of data centre business.”

Edelweiss says “We expect Wipro to post 1.0% and 2.0% revenue decline in cc and USD terms (mid-range of guidance), respectively, due to seasonal weakness and client-specific issues in utilities and telecom.”

The analysts at Edelweiss said, “Operating margin is expected to remain flat QoQ as INR depreciation benefits will be offset by higher visa costs (50bps) and wage hikes (60bps) for one month during the quarter. We expect management to guide for 1.0-3.0% growth in Q2FY19 in cc terms.”

TCS Q1FY19

The company posted net profit of Rs 7,362 crore up by 23.73% from Rs 5,950 crore in Q1FY18 and up by 6.31% from Rs 6,925 crore in Q4FY18. It further recorded revenue of Rs 34,261 crore above 15.81% from Rs 29,584 crore in Q1FY18 and higher by 6.82% from Rs 32,075 crore in Q4FY18. 

A Bloomberg poll of analysts had predicted TCS profit and revenue at Rs 7,018 crore and Rs 33,979 crore during Q1FY19.