India’s Technology Sector was supposed to be resilient to the blues of COVID-19 and to some extent they’ve proved it right.
Out of Ten largest listed IT companies (except Oracle) have issued their Results of Q1 2020-21.
TCS have seen the biggest hit in profit whereas Mindtree have grown it’s profit Exponentially.
Large IT Companies
On Overall basis there is no major change in total profit of large IT Companies however Infosys & HCL have seems to have taken some pie out of TCS.
Though profit of WIPRO have been flat however it’s net profit margin have been down by 4% along with impact on IT products segment.
Tech Mahindra also reported Flat numbers however on closer look it seems it has come at the cost of Operating Margins with significant impact on BPO segement.
Midcap IT Companies
It is being daily said by market veterans that Mid IT Companies hold value. To some extent that can be true since their segment have not degrown significantly except the travel & transportation of Mind Tree.
Additionally their Margins have also improved with the highest being in BFSI segment of Mindtree .
The Road Ahead (What Management Said?)
Overall, from an aggregate impact perspective, we believe that we have probably bottomed out in Q1. As we had mentioned last quarter, we think the deepest cut would come in Q1. So from here, we should be on path of growth.
Notwithstanding the large stimulus programs in the U.S. and Europe, there are still economic uncertainties in those markets as there are still emerging medical scenarios. There are also emerging medical outcomes in India that are not fully known. However, with what we have learnt in Q1 and ongoing strong client connects, we feel the strength of our franchise is coming through clearly and with that we will reinstate our guidance. For the full financial year, our revenue growth guidance is 0% to 2% YoY in constant currency. Our operating margin guidance for the full year is 21% to 23%.
Our margin aspiration in these stressed times is focused on resilience and stability and consequently our operating margin guidance remains unchanged as last year within the band of 21%-23%.
Demand environment is driven by what we call as three ‘C’. The first is Cloud. Second is Collaboration. And Third is Cyber. We are also seeing great uptick in offerings like VDI, SDWAN excellent traction for our digital operations and platform offerings in this post COVID era.
From our sector standpoint, while we have had a tough Q1 probably across all sectors, but specifically we are seeing some stability returning in our consumer business unit, in our tech business unit and in our communications business unit. For others, we will watch it closely as to how the traction unfolds during the course of Q2.
Not that this quarter has been easy, but last quarter when we got together, we had set ourselves three priorities — #1 was cash flow management.
2nd was we had said that we will start looking at each line item,each penny that we are spending, we use the team of data analysts, we used a lot of decision-making tools under the chief transformation office, but 100 data scientists work with our CTO, Simmi.
And what we are seeing is that now she has an aggressive plan for the rest of the year.Those hundred data scientists have more or less assured us through the CTO office that our margins will continue to improve because now we are literally measuring in micro-millimeter.
3rd is really about the growth. We have analyzed growth to look at customer segments, whether they are in telecom, media, entertainment or in manufacturing, if in manufacturing, whether they are in aerospace or automobiles. So, we have done that analytic and we have done a fair amount of modeling on where the growth will come from.
We have successfully regrouped and re-imagined all our customer processes and we also looked at branding, we looked at digital marketing, we looked at the digital transformation, and all of them are being re-grouped together. So the company is making some structural changes, but that is an area of focus.
Europe region is a focus area for us and we are pleased with the fact that our increased sales efforts and investments in this region are yielding good results. New Gen Services continue to be our focus area.
We have been continuously improving the client pyramid and increasing the number of clients across key buckets and are confident that we would be able to continue to move more accounts into higher buckets through our proven account mining strategy.
Also we continue to stay close to our DXC client managers to enable any immediate areas of opportunity. We still use it as a strategic relationship.
From near-term perspective, we continue to see uncertainty in travel segment. While deal conversions are taking a little longer, we are seeing good demand traction in CMT and RCM segments. With all these tractions, we anticipate our Q2 revenue to be better than Q1. Our focused service offerings, healthy deal pipeline, surge in digital demand, steady ramp up of deal wins and future-ready talent gives us confidence to strengthen our position in the market. We will continue to grow and also continue to drive operational efficiencies.
Based on the signed deals and the late-stage large deal pipeline ahead of us, we expect to see a sequential revenue growth of at least 7% in constant currency terms in Q2. This growth, along with the rollback of one quarter discounts we have negotiated with some non-airline Travel clients, should also result in material margin expansion by around 150 bps sequentially.
I would like to affirm that our growth for the full fiscal year ‘21 in constant currency terms is expected to be in the mid-single digits. Driven by better operating leverage and sustained efficiency measures, we expect our EBITDA margins for the full year FY’21, before RSU costs, to be the same as fiscal year ‘20 margins, that is 17.8%. You will recall last quarter I had indicated we might be around 17.1%
So we think our best performing geography for the year will be Europe followed by US. APAC, our clients in many ways had kind of
the biggest impact even though it is receded now. Some of the impacts especially in the manufacturing sector and travel sector are long -lasting. So APAC was the toughest business and we had to do some rebuilding there and we think the best Geo for us through the year will be Europe.
We were conservative about hiring, we paused all non-essential hiring including onboarding of batches which will resume in Q3.
we expect some volume growth to happen in Q3 and Q4 and there are some normal cyclical issues that will come in Q4.
Our Q3 will be good and Q4 will come down, but that happens for us every single year.
The management seems very optimistic about Q2/Q3(Hexaware) 2020-21 let’s see how it unfolds.
Read more on Stock Info.
Other Sectors Updates coming soon.
Information Technology sector forms major chunk of author portfolio. The Authot have invested in TCS , HCL & Mphasis and going forward may invests in any or all of them.