InvestorQ : How do you summarize the results of the IT companies like TCS, Infosys, Wipro and HCL Tech for the third quarter ending December 2020?
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How do you summarize the results of the IT companies like TCS, Infosys, Wipro and HCL Tech for the third quarter ending December 2020?

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Deepa Salunkhe answered.
2 months ago
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The four major IT companies in India i.e. TCS, Infosys, HCL Technologies and Wipro have already announced the results and in all the cases the results were much better than expected. Two things have emerged in these four results. Firstly, the revenue and profit growth plus guidance is very attractive. Secondly, operating margins were very attractive.

Let us look at financial performance first. In all the cases, the top line growth was above average but profit growth benefited from smart cost control measures despite higher manpower costs. In terms of guidance, TCS does not give guidance about the future performance as a matter of policy, but the others gave guidance that was flattering.

If you take a quick look at the other 3 players i.e. Infosys, HCL Tech and Wipro, then the guidance on revenues has been quite robust. All three have guided revenue growth of 2.5% to 3.5% for the Mar-21 fourth quarter. That is largely driven by solid traction in IT spending in the key global markets like the US, UK and EU. In retrospect, the concerns expressed by Gartner on IT spending look quite overstated.

The second big story of IT companies is on the operating margins, which is a critical parameter. It stood out for all four companies as a high growth and robust indicator. TCS led the sweepstakes with over 26% OPM while Infosys was close behind at above 25%. Infosys has substantially largely narrowed its OPM gap with TCS, which was the cause of valuation divergence between TCS and Infosys in the first place.

Even the other two players i.e. HCL Tech and Wipro saw 300 basis points expansion in OPMs with both of them positioned with OPMs comfortably above 21%. This is the first time in recent memory that the growth in OPM has been so robust and also so decisive. COVID forced Indian IT companies to manage costs better and cut down on attrition, even as employee costs were actually higher.

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