IT Q3 FY24 Performance: Outcomes Mostly Align With Estimates

The Q3 FY24 results have largely toed the line on the analyst estimates with Tata Consultancy Services (TCS) surpassing predictions, Infosys aligning closely and HCLTech outperforming, emerging as the top performer among IT giants. Despite Wipro reporting a drop in profit, interesting deal wins suggest potential positive prospects ahead.

Revenue and Profits

Tata Consultancy Services (TCS) outperformed expectations in Q3 FY24, reporting a decent YoY revenue growth of 4 per cent, reaching Rs 60,583 crore.

“Tata Consultancy Services (TCS) has reported beat on both revenue (despite challenging demand environment) and margin fronts despite headwinds from BSNL deal ramp-up in Q3FY24.” - ICICI Securities in its note.

The Profit After Tax (PAT) witnessed 8.2 per cent YoY surge for TCS, amounting to Rs 11,735 crore. These figures surpassed earlier projections, defying the estimated 0.7 per cent QoQ rise in consolidated revenue and a 1 per cent increase in profit.

“We increase our EPS estimate by 5.5 per cent/1.7 per cent for FY25/26E led by an increase in margin estimates. We continue to value TCS at 25x on Q5-Q8 EPS of INR 155 to arrive at our revised TP of INR 3,872, with potential 4 per cent upside. Maintain HOLD,” ICICI Securities said.

Infosys reported a consolidated net profit of Rs 6,106 crore for Q3 FY24, down 7 per cent from the previous year. The revenue from operations, however, showed a 1 per cent increase, reaching Rs 38,821 crore. While slightly below the analyst poll estimate, Infosys showcased resilience with a focus on net new deals, contributing to a positive outlook despite the dip in profits.

“Infosys’ (INFY) revenue growth was better than consensus estimates and margin was in-line with our/consensus estimates,” said ICICI Securities.

Wipro faced challenges in Q3 FY24, experiencing an 11.9 per cent YoY drop in consolidated net profit, which stood at Rs 2,700 crore. Deal bookings reflected a 13.5 per cent YoY decline in constant currency, and the Total Contract Value (TCV) of large deals decreased by 8.3 per cent YoY, amounting to USD 0.9 billion. The company provided cautious guidance for its IT Services business segment revenue.

HCLTech reported strong financial results, with 6 per cent YoY increase in consolidated net profit, reaching Rs 4,350 crore. The consolidated revenue marked a 6.5 per cent YoY growth, totaling Rs 28,446 crore. The positive performance was attributed to a USD 50-million incremental revenue from the Verizon deal and additional income from the acquisition of Germany’s ASAP.

Deal Wins

TCS reported a deal Total Contract Value (TCV) of USD 8.1 billion for Q3 FY24, missing the company’s quarterly deal win guidance of USD 9-10 billion. The decline was attributed to the absence of mega deals, challenges in key verticals like banking, financial services and insurance (BFSI) and the overall market sentiment.

Infosys secured USD 3.2 billion worth of large deals in Q3 FY24, with 71 per cent coming from net new deals. The strong net new order book impressed analysts, providing comfort to expectations of a 13 per cent EPS CAGR over FY24-26.

Wipro's deal bookings for Q3 FY24 totaled USD 3.8 billion, reflecting a 13.5 per cent YoY decline in constant currency. The Total Contract Value (TCV) of large deals amounted to USD 0.9 billion, marking an 8.3 per cent YoY decrease.

HCLTech announced securing New Deal wins with a Total Contract Value (TCV) of USD 1,927 million in Q3 FY24. The company clinched a total of 18 large deals during the quarter, comprising six in services and 12 in software.

Guidance

Infosys narrowed its revenue guidance to 1.5-2 per cent YoY CC for FY24, down from the earlier 1-2.5 per cent. The company remains cautious, citing unchanged demand outlook for Q4 FY24 and anticipates the ramp-up of large deals towards the end of Q4FY24.

Wipro provided guidance for its IT Services business segment revenue, expecting it to be in the range of USD 2,615 million to USD 2,669 million. This translates to a sequential guidance of -1.5 per cent to +0.5 per cent in constant currency terms.

HCLTech adjusted its revenue growth guidance for FY24 to 5-5.5 per cent YoY in constant currency terms, including the impact of the ASAP acquisition. This is a slight reduction from the previous quarter's forecast of 5-6 per cent.

Hiring and Attrition

TCS reported a decline in headcount by 5,680 employees in Q3 FY24. The company is focusing on improving utilisation, and although attrition came down sharply by 160bps QoQ to 13.3 per cent, it is no longer maintaining significantly lower attrition than peers. The company said it would look to hire significantly in FY25 and has already begun campus hiring. Although, company’s Chief HR Officer Milind Lakkad did not provide any specific number on hiring.

Infosys' headcount declined by 7 per cent YoY in Q3 FY24, driven by efforts to improve utilisation. Attrition also declined sharply by 170bps QoQ to 12.9 per cent. The company sounded cautious in its hiring commentary for the coming quarters.

Wipro highlighted proactive measures in managing attrition, which reached a 10-quarter low of 12.3 per cent in Q3 FY24. The company's headcount saw a reduction of 4,470 employees for the quarter. However, there was no clarity on hiring and the company remains cautious, as indicated in its commentary post-earnings press conference.

HCLTech was the only positive IT player to show headcount growth, with a net addition of 3,617 in Q3 FY24. As per a media report, HCLTech plans to onboard 10,000 freshers in FY24, rebounding after two previous quarters of slowdown in headcount. The company is apparently going to see significant headcount addition in H2 FY24.

"It's a mixed bag. Traditionally, TCS sets the tone, but this time, we observe a divergence in perspectives from all four major players. While three express caution, emphasising the hiring of entry-level talent and prioritising training and upskilling on the lower-end, there's a consensus on exercising restraint in full-fledged hiring. The prevailing sentiment suggests a conservative approach until tangible improvements in the overall business climate materialise." - Sunil Chemmankotil, CEO at staffing solutions company TeamLease Digital