TCS, HCL earnings recovery may get further push from growth in AI demand

By Harshita Swaminathan, Rachel Yeo, Reina Sasaki and Justina T. Lee

Earnings guidance from Indian IT outsourcing firms including Tata Consultancy Services Ltd. and HCL Technologies Ltd. will reveal how the much-awaited recovery is shaping up. 
 

With US and European companies remaining weary of spending on new projects, TCS and HCL have clung to outsourcing projects aimed at offering cost savings. TCS results this week should show revenue growth picked up sequentially in the April-June quarter, consensus estimates show. 

US-listed peer Accenture Plc’s management has indicated the boom in generative artificial intelligence is acting as a catalyst for businesses to rethink and invest in their IT systems. That should create revenue opportunities for firms like TCS and HCL.

Over in Japan, Uniqlo-owner Fast Retailing Co., and Ryohin Keikaku Co., which owns the Muji brand, should both see double-digit operating profit growth in the quarter. Warmer temperatures boosted sales of spring-summer clothing, according to Bloomberg Intelligence.

Meanwhile, South Korea’s LG Energy Solution Ltd.’s preliminary second-quarter operating profit fell below expectations as sales of electric vehicles continued to slow.

Highlights to look out for:

Thursday: Tata Consultancy Services’ (TCS IN) quarterly profit should grow 8 per cent as the earnings recovery begins to take shape in the Indian IT space. Salary hikes should hurt margins compared with a quarter ago, though the pace of wage increases slowed, analysts at Prabhudas Lilladher said. TCS probably added more than 10,000 employees from a quarter ago, the first sequential headcount growth in a year. Watch for commentary on financial sector clients, which account for almost a third of revenue and have been a large part of the recent slowdown. 

Fast Retailing’s (9983 JP) third-quarter operating income probably rose 12 per cent, estimates show. Sales in East and Southeast Asia should strengthen if economic sentiment improves, SMBC Nikko said. Its operating margin in China will be scrutinized amid sluggish consumer sentiment, the brokerage added. The retailer is also betting on new technologies, including checkouts without bar codes, to reach its target of 10 trillion yen ($62 billion) in annual sales.
 

Seven & i’s (3382 JP) first-quarter operating profit probably declined 7.7 per cent, consensus shows. Domestic and overseas sales were sluggish in March and April. The overseas business may achieve its fiscal 2025 operating profit growth target of 4 per cent, helped by improved gas volumes from 204 new stores and slight growth in gross margin, SMBC Nikko said.
 

Friday: HCL Technologies’ (HCLT IN) first-quarter earnings should be supported by robust revenue growth in the IT & business and engineering & R&D services units, consensus shows. It’s expected to repeat 2025 revenue growth guidance of 3 per cent-5 per cent at constant currencies, according to Nomura. Jefferies said a near-term growth recovery is unlikely as discretionary IT spending remains muted.

Ryohin Keikaku (7453 JP) should post quarterly operating profit growth of 15 per cent, as higher temperatures spurred sales of its spring-summer clothing. The China business has been struggling, but still outperforming the general apparel market in China, Jefferies analysts said in a June 10 note. The owner of Muji may include more affordable items in its lineup to fend off local rivals like Miniso and meet full-year earnings targets, BI said.