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Business News » Markets News

Infosys and Wipro: Robust growth expected despite adverse seasonality says Motilal Oswal

Motilal Oswal expects CY21 demand commentary to remain strong. Recent commentary from both large- and mid-cap IT Services companies during their annual investor meets (Infosys, Wipro, LTI, etc.) point to continued optimism on their CY21 growth outlook, even after adjusting for a low base YoY. Motilal Oswal expects this optimism to be echoed by other management during the Q3 FY21 earnings season. 

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Infosys and Wipro: Robust growth expected despite adverse seasonality says Motilal Oswal
Multiple mega deal wins in Cloud and Captive (TCS – Postbank and Pramerica, Infosys – Rolls Royce and Daimler, and Wipro – METRO AG) should add incremental growth to an already buoyant organic growth momentum: Reuters
Reported By: ZeeBiz WebTeam
Written By: Rahul Kamdar
Edited By: Harish Dugh
Updated: Mon, Jan 11, 2021
12:38 pm
Mumbai, ZeeBiz WebDesk
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Motilal Oswal expects CY21 demand commentary to remain strong. Recent commentary from both large- and mid-cap IT Services companies during their annual investor meets (Infosys, Wipro, LTI, etc.) point to continued optimism on their CY21 growth outlook, even after adjusting for a low base YoY. Motilal Oswal expects this optimism to be echoed by other management during the Q3 FY21 earnings season.

Healthy order pipeline, large deal signings, strong earnings from Accenture, and absence of headwinds like a repeat of the Covid-19 led lockdown in Q1 FY21 or uncertainty with regard to the outcome of the US Presidential election should drive the outperformance in Q3 v/s management guidance in 2QFY21. Multiple mega deal wins in Cloud and Captive (TCS – Postbank and Pramerica, Infosys – Rolls Royce and Daimler, and Wipro – METRO AG) should add incremental growth to an already buoyant organic growth momentum. Motilal Oswal expects their coverage universe to deliver adjusted sales (USD)/adjusted EBIT/PAT growth of 1%/12%/7% YoY in Q3 FY21.

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Infosys to lead sequential revenue growth across Tier I, PSYS in Tier II n In Tier I:

Motilal Oswal expects Infosys/ TCS/ HCL Tech to drive organic growth (4%/3%/3% QoQ, including cross-currency tailwind) despite a high base and season weakness. Accenture’s recent earnings showed a strong increase in its Outsourcing vertical, indicating demand normalization/recovery. Coupled with strong deal wins across the IT sector, we expect an increase in guidance/positive commentary. Among Tier II IT, we expect upbeat revenue traction, with the exception of ZENT. PSYS should lead the pack with mid-single digit sequential growth, led by a recovery in the Alliance business. Some of the positive movements in Tier II growth/guidance may not be surprising given the strong deal momentum.

While the sector trades at 40% premium to its 10-year average multiple, we remain positive as we expect the sector to sustain double-digit topline growth in the medium term, led by:

1)      larger deals on a full-scale Digital transformation
2)      tail of projects steered by increased focus on workplace management
3)      higher spend on Cloud migration by large corporates.

A strong QoQ growth (3% on an average) in a seasonally weak quarter should help sustain the rally in IT stocks despite their premium valuations.

 

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TAGS:
InfosysWipro
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