TCS, Infosys and Tech Mahindra To Report First-Quarter Results; Who Will Face Less Impact To Hardest Hit - Check Here! 

As IT companies are gearing up to post their first-quarter results, the number of most of the firms are likely to be poor. Among most of the IT services companies- Tata Consultancy Services (TCS) is all set to post their first-quarter results which begins today. 

According to Business Insider report, the results posted by IT firms will be between the months of April through to June, where the numbers are likely to be poor. If recovery is to be expected then it would likely occur in the second quarter while the third and fourth quarters, for IT services companies, are seasonally weak.

Due to the current situation, the work from home has likely brought down expenses and overhead costs that could help the operating margins with boost from a weak rupee, the Business Insider further reported.

"While a fall in utilisation levels and negative operating leverage should hurt margins, they should be partly offset by sharp rupee depreciation, the deferral of salary revisions, and the absence of certain general and administrative (G& A) or PM CARES fund-related expenses," said brokerage firm Motilal Oswal.

Highlighting about a sharp dip in revenues which is to be expected; the top five IT services companies are TCS, HCL Technologies, Infosys, Wipro and Tech Mahindra.  All these firms are likely to post a 5 percent to 8 percent dip in their dollar revenues due to the impact of the coronavirus, according to CLSA’s report. "Despite indications of improved demand visibility, we expect Infosys, HCL and L&T to wait for Q2FY21 to evaluate reinstating formal guidance," said CLSA.   

“We think the markets are still in a mood to overlook any misses given the continued macro uncertainty and even the the lack of negative could trigger positive share reactions," said Divya Nagarajan from global research and brokerage firm UBS. She further pointed that the company will still be a low-point for revenues that can be expected in the second quarter.

Meanwhile, Edelweiss Securities also believes that the coronavirus lockdown will have had a “severe impact” on IT services companies. In its recent report, it said "the lockdowns have limited new deal wins and will have a ripple effect on getting substantial growth back till FY21 end."

Pointing over the sector-wise impact; most of them will be borne by verticles like travel, transportation, energy, retails and manufacturing. So the brokerage firms recommend that investors should focus on:

- Order booking instead of the pipeline since it results the company’s portfolio strength and sale engine effectiveness.

- Firm should also evaluate the exposure to discretionary spending by looking at the dip in revenue in ‘non-troubled verticles’.

- Finally, the focus on the margin management drivers since cost-structure deflation would reflect long-term positive growth.