Jul 4, 2024

TCS, HCL Earnings Recovery May Get Further Push From AI Demand

Harshita Swaminathan, Rachel Yeo, Reina Sasaki and Justina T. Lee, Bloomberg News

An employee is illuminated by the screen of an Apple Inc. laptop computer as he works at Flock's office in Mumbai, India, on Wednesday, June 28, 2017. Flock, a cloud-based team collaboration service that has attracted 25,000 enterprise users and customers, is pitched as a way to share ideas in real time while doing away with communication hierarchies, at a cheaper price than rival services. Photographer: Dhiraj Singh/Bloomberg , Bloomberg

(Bloomberg) -- Earnings guidance from Indian IT outsourcing firms including Tata Consultancy Services Ltd. and HCL Technologies Ltd. will reveal how the much-awaited recovery is shaping up.

With US and European companies remain weary of spending on new projects, TCS and HCL have clung to outsourcing projects aimed at offering cost savings. TCS results next week should show revenue growth picked up sequentially in the April-June quarter, consensus estimates show.

US-listed peer Accenture Plc’s management has indicated the boom in generative artificial intelligence is acting as a catalyst for businesses to rethink and invest in their IT systems. That should create revenue opportunities for firms like TCS and HCL.

Over in Japan, Uniqlo-owner Fast Retailing Co. and Ryohin Keikaku Co., which owns the Muji brand, should both see double-digit operating profit growth in the quarter. Warmer temperatures boosted sales of spring-summer clothing, according to Bloomberg Intelligence.

Highlights to look out for:

Monday: LG Energy Solution’s (373220 KS) second-quarter earnings may disappoint amid lower demand for electric vehicles in Europe, HI Investment & Securities said. Demand from Tesla, a customer for its cylindrical battery, also fell short due to price competition from Chinese EV makers. It’s rushing to commercialize battery technology that will fend off Chinese rivals.

Thursday: Tata Consultancy Services’ (TCS IN) quarterly profit should grow 8.3% as the earnings recovery begins to take shape in the Indian IT space. Salary hikes should hurt margins compared with a quarter ago, though the pace of wage increases slowed, analysts at Prabhudas Lilladher said. TCS probably added more than 10,000 employees from a quarter ago, the first sequential headcount growth in a year. Watch for commentary on financial sector clients, which account for almost a third of revenue and have been a large part of the recent slowdown.

Fast Retailing’s (9983 JP) third-quarter operating income probably rose 12%, estimates show. Sales in East and Southeast Asia should strengthen if economic sentiment improves, SMBC Nikko said. Its operating margin in China will be scrutinized amid sluggish consumer sentiment, the brokerage added. The retailer is also betting on new technologies, including checkouts without bar codes, to reach its target of 10 trillion yen ($62 billion) in annual sales.
Seven & i’s (3382 JP) first-quarter operating profit probably declined 7.7%, consensus shows. Domestic and overseas sales were sluggish in March and April. The overseas business may achieve its fiscal 2025 operating profit growth target of 4%, helped by improved gas volumes from 204 new stores and slight growth in gross margin, SMBC Nikko said.

Friday: HCL Technologies’ (HCLT IN) first-quarter earnings should be supported by robust revenue growth in the IT & business and engineering & R&D services units, consensus shows. It’s expected to repeat 2025 revenue growth guidance of 3%-5% at constant currencies, according to Nomura. Jefferies said a near-term growth recovery is unlikely as discretionary IT spending remains muted.

Ryohin Keikaku (7453 JP) should post quarterly operating profit growth of 15%, as higher temperatures spurred sales of its spring-summer clothing. The China business has been struggling, but still outperforming the general apparel market in China, Jefferies analysts said in a June 10 note. The owner of Muji may include more affordable items in its lineup to fend off local rivals like Miniso and meet full-year earnings targets, BI said.

--With assistance from Shinhye Kang.