6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine

MENU

Home » Info-tech

Latest News
IT firms’ margins hit a
three-year low in FY24
Updated - April 28, 2024 at 08:33 PM.

Tata Consultancy Services is the only top IT firm to buck the

trend this financial year
Ashok Leyland eyes strong rise in
BY AYUSHI KAR
exports in FY25 amid market revival
and strategic expansions
Companies HCL Technologies Ltd Infosys Ltd ✓
to follow Wipro Ltd Tata Consultancy Services Ltd ✓

COMMENTS SHARE READ LATER

Lok Sabha elections 2024:
How much Nifty50, Sensex
will surge on the results day
BY GURUMURTHY K & BL RESEARCH
BUREAU

Margins for top Indian IT firms,

excluding TCS, hit the lowest in
three years during FY24.
As economic troubles starting
with the war in Ukraine spelled
trouble for Western markets like
Europe, firms have largely been
reporting declining margins in
every financial year. The risk of
recession in the 2024 fiscal
along with necessary
investments into generative AI
further dampened operating

https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 1/7
6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine

margins for top IT firms

Openlike
in App
HCL Tech, Wipro, and Infosys.
Also read: TCS, Infosys,
Wipro and HCL Tech: Why
Accenture sets the tone for
IT stocks from here
Tata Consultancy Services was
the only firm to buck that trend
in this financial year, reaching
back to the historically
comfortable range of 26-28 per
cent that it enjoyed before the
pandemic, in the closing quarter
of the 2024 fiscal. However, in
an interview with businessline,
TCS CFO Samir Sheksaria
indicated that India’s largest IT
firm might not be able to
maintain its 26 per cent margin
in the first half of FY25.
Prioritizing investments into
generative AI has been at the
forefront for every Indian IT firm
but it is coming at a cost. Even
as IT firms continue to
implement cost optimization
measures such as hiring freeze,
reduction in subcontractor
costs and even layoffs.
Related
Article
Making of
the Tatas’
jewellery
Sanchit Vir Gogia, Chief Analyst
brand

and Founder of Greyhound

Research explained to
businessline, “Given the
macroeconomic uncertainty,
business cycles are much
behind the investment cycles for
IT companies. With
technologies like AI and IOT
needed for future growth, IT
firms have to continue to make
https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 2/7
6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine

these investments, even as

digital transformation projects
continue to be delayed.” Gogia
believes that for the most part,
IT firms will not be able to
improve margins significantly
in the next financial year as well
– even though management
commentary for the closing
quarter of FY24 has posited
some optimism for the 2025
fiscal.
TCS was the only IT company
that was able to buck the trend.
TCS started the 2024 fiscal with
an operating margin of 23.2 per
cent (Q1FY24) posting
significant gains each quarter to
end at a 26 per cent operating
margin in Q4FY24.
Also read: Wipro: Becomes
a ‘show me’ story, again!
Infosys started the year with a
20.8 per cent operating margin
(Q1FY24) and ended with 20.1
per cent in Q4FY24. Wipro was
only able to increase its margins
by 40 basis points over the
course of the year from 16 per
cent in Q1FY24 to 16.4 per cent
in Q4FY24. HCL Tech, which
was indicating recovery in
margins in FY24 peaking at an
operating margin of 19.8 per
cent in the third quarter, was
only able to improve its margins
by 0.6 per cent between Q1FY24
to Q4FY24, ending the financial
year at an operating margin of
17.6 per cent. All four IT firms
found that their overall
operating margins for FY24 were
the lowest they have been in the
last 3 fiscal years.

https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 3/7
6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine

Naturally, the shift from digital

transformation deals to
optimisation deals has made a
significant impact on margins.
Pareekh Jain, and IT analyst
explained, “optimization deals
generally do not have a large
headroom for profits and they
also require larger labor costs.
For most IT firms besides TCS,
this means that subcontractor
costs have also risen as a result,
further impacting the margins.
Investments into generative AI
are further squeezing margins
and TCS is the only firm with
the necessary scale to not be
affected by these costs.”
Gogia said that even though
firms like Infosys and HCL are
seeing limited growth in
margins, the investor
community is not necessarily
too concerned. “These are
necessary investments that will
deliver growth in 5-7 years,” said
Gogia. “Large-scale AI deals will
start to come in FY26 and FY27.
In this context, the current
margins for IT companies are
healthy even if they are being
squeezed at the moment,” he
added.

Get Curated Updates

Sign up for our free newsletters to get in-depth analyses, previews for
the day ahead, thoughtful roundups and more.

EXPLORE OUR NEWSLETTERS

By providing your email, you agree to THG's Privacy Policy

COMMENTS Published
SHARE on April 28, 2024

Related Topics
IT Sector / Artificial Intelligence /
HCL Technologies Ltd /
Infosys Ltd / Wipro Ltd /

https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 4/7
6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine

Tata Consultancy Services Ltd /

Economy, Business And Finance /

Companies /
Technology (General) /
Quarterly Or Semiannual Financial /

Statement
Quarterly Results

COMMENT NOW

Latest from Info-tech

INFO-TECH

Azim Premji’s PremjiInvest bets on AI to prop $10 billion fund

https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 5/7
6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine

INFO-TECH

Pune court asks police to probe bribery allegations against IT major Cognizant

INFO-TECH

HCLTech Q4 FY24 net profit flat at ₹3,986 crore

https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 6/7
6/3/24, 9:53 PM IT firms’ margins hit a three-year low in FY24 - The Hindu BusinessLine
INFO-TECH

UST acquires Strativity Group, strengthens presence in Australian market

INFO-TECH

Mphasis reports 2.9% y-o-y profit decline at 393.22 cr

SHOW MORE

https://www.thehindubusinessline.com/info-tech/it-firms-margins-hit-a-three-year-low-in-fy24/article68117984.ece 7/7