In addition, HCLTech’s operating margin (EBIT margin) expanded significantly by 130 basis points sequentially to 19.8%. This compares with the contraction reported by Infosys and Wipro and an expansion in TCS margin after excluding one-off items. However, the size of new deal wins for HCLTech reduced to $1.9 billion compared with nearly $4 billion in the previous quarter and $2.3 billion in the year-ago quarter. The peers on the other hand more or less retained the momentum year-on-year.
Wipro, which also reported the December quarter numbers on Friday, restricted the impact of lower revenue on the operating margin, which contracted by 10 basis points to 16% sequentially. The country’s fourth largest software exporter reported a sustained momentum in new deal wins with a total contract value (TCV) worth $3,791 million for the quarter, similar to $3,785 million in the previous quarter. The size of new deals stayed above $3,000 million for three consecutive quarters.
Wipro expects to report a marginal sequential growth in constant currency (CC) revenue for the March 2024 quarter considering its guidance range of -1.5% to 0.5%. This is an improvement when compared with the guidance of a sequential drop of 1.5% to 3.5% in CC revenue given three months ago for the December quarter hinting at a subdued demand trend.
The employee attrition rate continued to fall in the December quarter for each of the top four IT companies. Barring HCLTech, which expanded the headcount by 3,617, other three companies reported a lower employee base quarter-on-quarter.
Given the buoyancy in the new deals, the top IT companies are likely to register an improved performance in the next fiscal year. However, the trend will depend upon the pace of economic recovery in the key markets of the US and Europe in the view of expectations of an end to the higher interest rate regime in these economies. Clients in these regions have deferred large transformational deals, which are discretionary in nature, over the past few quarters and have focussed more on increasing cost efficiency. They will wait for a greater demand certainty before resuming spending on discretionary deals.
On Friday, the stocks of the top IT companies gained 4-8% on hopes of a recovery in FY25 buoyed by the trend in deal wins. While the stocks may show investor interest in the short term, the medium-term outlook will depend upon the actual reported performance over the next few quarters.