Mrs. Aditi Patil Reasearch Associate at Prabhudas Lilladher.
- Cross currency headwinds of 100-200bps QoQ to impact USD revenue growth.
- Margins to decline ~100-200bps QoQ led by wage hikes, higher retention costs and increased travel costs.
- Key things to monitor for Q1FY23E - 1) impact of weak macro environment on deal pipeline & tech budgets and 2) commentary on hiring and attrition.
We estimate healthy revenue growth of 2.7-4.5% QoQ CC (avg: 3.4%) for Tier-1 and 2.5-5.8% QoQ CC (avg: 3.7%) for Tier-2. However, USD revenue growth will be lower due to cross currency headwinds of 100-200bps QoQ. We anticipate margins to decline by 100-200bps QoQ led by wage increments, higher retention costs, increased travel costs and drop in utilization levels. We expect healthy deal wins in Q1. Further management may reiterate strength in near term demand. We expect Infy and HCLT to maintain their revenue and margin guidance for FY23. Commentary on health of consumer facing verticals and reprioritization of client spends would be key points to monitor.
We shift from DCF based valuation to PE multiple based relative valuation and tune our target multiples factoring risk of slowdown in technology spends, given worsening global macro. We reduced our revenue estimates by 3-5% baking in moderation in IT demand. We prefer INFY & TCS among Tier 1 given strong growth momentum on a high base and best in class operating metrics. Among Tier-2 we prefer Coforge, Mindtree & LTI.