In the current quarter, IT companies are expected to witness both supply related as well as demand side challenges. The supply side challenges are mainly due to lockdown imposed by many countries (owing to the pandemic), which saw easing only in May end. Further, the companies are expected face demand headwind in terms of pricing pressure, lower discretionary spend, delay in deal ramp ups and decline in acquisition of new clients. This, combined with lower utilisation, is expected to sharply impact Q1FY21E revenues. We expect companies with higher exposure to travel, hospitality & retail to witness a sharper fall in revenues. In addition, companies with higher BPO revenues are also expected to be impacted by supply related challenges and lower client approval for work from home mode. The sharp fall in revenues is also expected to negatively impact margins of IT companies.
Among midcap, LTI, MindTree to report stable margins
We expect L&T Infotech to report stable margins led by rupee tailwind, lower travel cost and absence of one-time contribution to PM cares fund (~70 bps). MindTree is expected to report an improvement in margins mainly led by absence of one-time cost of contribution to PM Cares fund (~100 bps). Adjusting for this, the company is expected to report flat margins QoQ. On a YoY basis, MindTree is expected to post 670 bps improvement in margins due to absence of one-time compensation cost (260 bps) & visa cost (30 bps ), deferral of wage hikes (190 bps) and low base.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_IT_Q1FY21.pdf