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MOSL: TECHNOLOGY - 1QFY22 PREVIEW: Sustained demand tailwind to drive growth in 1QFY22

Technology - 1QFY22 PREVIEW: Sustained demand tailwind to drive growth in 1QFY22

 

Outlook to remain intact in FY22

• We expect a median USD organic growth of 3.3% CC QoQ in 1QFY22 for our IT Services coverage universe. Despite a high base effect in 2HFY21, a strong demand environment and deal wins should result in continued strength across largecap and midcap IT companies (with a few exceptions).
• We expect largecap IT companies to report organic revenue growth of 2.1-3.9% QoQ CC, while the same for midcaps (excluding CYL, which will decline due to non-IT DLM business seasonality) should have a wider band of 2.8-6.3% QoQ.
• We expect commentary with regard to FY22 to remain constructive, with firms maintaining their double-digit revenue growth guidance. We also expect better clarity from companies like INFO, HCLT, and LTTS, which highlighted COVID- related uncertainty in their outlook in 4QFY21. We expect INFO to raise its FY22 revenue growth guidance on the back of a strong 1Q performance, while a revised capital allocation policy from HCLT can be a positive development.
• Recent commentary from industry peer ACN points to a better than expected demand environment. With strong deal signings expected during 1QFY22, the outlook on a seasonally strong 2Q should also be positive.

 

INFO/MTCL to lead QoQ revenue growth across largecap/midcap IT space

• We expect INFO to lead the growth in largecaps at 3.9% QoQ CC. This will be followed by TCS (+3.8% QoQ CC) and WPRO (+3.4% QoQ organic and 9% QoQ, including the CAPCO acquisition). HCLT/TECHM is expected to grow at 2.4%/2.1% QoQ, with TECHM benefitting from a 100bp inorganic component.
• Among midcap IT, we expect upbeat revenue traction, with the exception of CYL, which will decline by 4% QoQ, led by DLM seasonality and the impact of COVID-19 on the workforce during 1QFY22. MTCL should lead the pack with 6.3% QoQ growth, aided by deal ramp ups and growth momentum in both its top client and top 2-10 clients. We also expect PSYS and MPHL (Direct business) to deliver a strong performance in 1QFY22 by growing above 5% QoQ.