Indian IT companies are expected to post muted earnings growth in the December quarter due to the impact of Chennai floods and weak seasonal demand.
Domestic IT players usually face weak demand in the October-December quarter as Christmas and New Year holidays result in less business volumes from the key markets -- the US and Europe. Both the markets contribute to nearly 85% of the revenues of IT firms in the country.
"Weak Q3 seasonality for IT Services is compounded this year by higher-than-expected furloughs, cross-currency movement and impact from Chennai floods affecting delivery for five days, and high absenteeism in the following few days," Motilal Oswal said in a report.
Last month, Tata Consultancy Services (TCS) had said that its third quarter revenues would be significantly impacted by the worst floods witnessed in the city in nearly 100 years. TCS' earnings have already disappointed the Street's expectations in the past several quarters.
India's largest IT firm TCS had said other than mission-critical activities, normal business functioning of its Chennai facilities had to be halted in the first week of December due to the extreme weather conditions and flooding of the city after incessant rain. TCS employs over 65,000 people in Chennai.
Kickstarting the quarterly earnings season for IT firms, TCS will announce its results for the third quarter of fiscal year 2015-16 on 12 January, followed by Infosys (14 January), Wipro (18 January) and HCL Technologies (19 January).
"We expect muted growth... Large-caps are likely to report tepid dollar revenue growth of 0.3-1.1 per cent quarter-on-quarter with Chennai floods exacerbating the seasonal weakness in Q3, particularly for TCS and Wipro," Press Trust of India quoted Religare as saying.
India's third largest IT firm Wipro also gave a similar warning about its Q3 earnings following floods in Chennai. The company had said that increase in costs due to deployment of business continuity plans would impact revenues and operating margins for the quarter ended December 2015.
"Revenues from our IT Services business are expected to be in the previously communicated range of $1,841 million to $1,878 million; However, we expect revenues to be in the lower half of the guidance range," the company had said in the statement.
Wipro has a headcount of about 22,000 people in its facilities in Chennai.