Q4 results: India's IT services biggies fail to meet expectations

Wipro net dips 0.4% in Q4, guides for revenue contraction in current quarter

India’s fourth largest IT services player, Wipro, said it expects revenue to contract in the first quarter of financial year 2023-24 (FY24). It guided for a revenue contraction of 1-3 per cent in constant currency.

Wipro does not provide revenue guidance for the full fiscal. The company reported net profit of Rs 3,074.5 crore in Q4FY23, a dip of 0.41 per cent year-on-year (YoY), and sequentially PAT was flat with a growth of 0.7 per cent.

At Rs 23,190 crore, revenue rose 11.1 per cent YoY in Q4, but was down 0.16 per cent sequentially.

Wipro missed Bloomberg estimates on both revenue growth and net profit. Bloomberg had estimated revenue at Rs 23,460 crore and PAT of Rs 3,129 crore.

But Wipro was not alone in missing estimates. Most top IT services players missed Bloomberg estimates on one count or the other. The only exception, perhaps, was HCLTech, which continued to report steady performance. However, even HCLTech missed the profit estimate.

“Looking ahead, we believe the macro environment will remain challenging. Our clients, our industries, and many sectors are impacted by the prolonged uncertainty in the economic environment. This has an impact on our business projections as well,” Thierry Delaporte, chief executive officer and managing director, said during a press conference in Bengaluru.

The management of most top IT services firms echoed this sentiment, saying that the momentum of tech spends had stalled in the discretionary area, but tech continues to be an important play in the client road map.

In terms of performance and future growth, it clearly looks like the industry will see some momentum only in the second half of the fiscal. Projections of tepid growth in FY24 had been made by industry body Nasscom early this year. Nasscom, in its Strategic Review 2023, defined the year as “priming for a no normal future”. As per the report, the Indian tech industry could record an incremental increase in net revenue, estimated at $19 billion this financial year, against $30 billion in FY22.

Commenting on the macro situation, Rajesh Gopinathan, CEO and MD of TCS, had said: “It’s a wait-and-watch scenario. As we look into the near-term demand scenario, it is varying for each market. We are not seeing people rethinking their transformational agenda. It is more of the discretionary projects that have been deferred or put on hold.”

In terms of performance, analysts are hopeful on TCS, as it has the capacity to perform better when discretionary spends rebound. While Infosys’ result was a surprise as it guided for a revenue growth rate of 4-7 per cent for FY24, which surprised the Street. What worries analysts is that Infosys has a bigger exposure to digital transformation of clients, which will see some delay in decision-making.

The worst performer in terms of just basic numbers was Tech Mahindra. The company’s Q4FY23 performance was below Bloomberg estimates on net profit, but it beat revenue growth projection. However, most of the metrics of the firm were disappointing. On a sequential basis, its verticals were either flat or saw a dip. But, more importantly, the revenue from the top 5 and 10 clients also dipped.

“On a year-on-year basis, this year will be slower. The first two quarters will definitely be soft, but the last two quarters will be good. Some clients are looking at tightening budgets and there is a slowdown in decision cycles,” said C P Gurnani, CEO and MD of Tech Mahindra.

However, there were two silver linings. All the top players saw the total contract value of deals rise. Rather TCS’s TCV for Q4 was $10 billion, which was higher than its average of $7-9 billion. Infosys and HCLTech had TCV of around $2 billion, Wipro had a TCV of $4.1 billion for the quarter, up 29 per cent YoY.

Second, supply side pressures are easing. Almost all reported a fall in attrition numbers on LTM (last twelve months) basis. In case of HCLTech, attrition declined 19.5 per cent. In the case of Tech Mahindra it was at 15 per cent. Going ahead, all the firms said attrition would reduce and dependence on sub-contractors will provide some headroom for margin expansion, which was compromised in Q4.