Sharing its view on the Indian IT sector, Edelweiss Research said that it expects IT companies results to surprise again with respect to higher guidance, better-than-expected margins and upbeat outlook. The brokerage argues that Indian IT companies are poised to turn in a robust Q4 driven by highest-ever order books, substantial revenue acceleration, robust margins, and strong outlook.
Edelweiss believes that a substantial shift from offline to online activities has accelerated the adoption of Cloud and Digital. It estimates that industry margins over the next five years would be at least 300 basis points (bps) higher than pre-pandemic levels led by WFH (or Work from Anywhere) savings and lower non-business travel costs. The gap between EBITDA and EBIT is set to reduce structurally owing to lower capex and facility spends.
The brokerage estimates 1.5–5.2% QoQ constant currency revenue growth with cross-currency benefits ranging from 10–70 bps on a quarterly basis. The spurt in revenue growth would be led by digital /cloud. TCS would lead the pack with QoQ growth (+4.8%), followed by Infosys (+4.1%), HCL Technologies (+3.5%), Wipro (+3.1%) and Tech Mahindra (+1.5%) in constant currency, it added. Edelweiss expects Infosys and HCL Tech to guide for 13–15% and 12–13% revenue growth, respectively, for FY22.
In Edelweiss’ view, Q4FY21 results will surprise again with robust revenue growth of 2–6% (in USD) by large-caps. All in all, the brokerage expects robust commentaries, record deal-wins and upbeat outlook. We believe the upward guidance revision by IT companies three quarters ago would be followed by upgrades in consensus forecasts for quarters to come, it added.
Edelweiss Research prefers Infosys, HCL Tech, TCS, Tech Mahindra, Mindtree, Larsen & Toubro Infotech, L&T Tech Services, eClerx, Persistent, and Cyient, and dislikes none.
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