Infosys, HCL Tech, TCS, Persistent, Coforge, Mphasis shares: What to watch in IT Q4 results

With IT stocks underperforming the market benchmarks in 2024 so far, all eyes would be how domestic IT firms perform in the March quarter earnings season, and whether one can pin hopes of any recovery in discretionary demand in H1FY25, following the muted recent commentaries by global IT peers

Anlaysts said the elevated PE multiples of Tier-1 and Tier-2 IT players are either a sign that there is an earnings upgrade cycle in the offing for FY25 or flows into equities are seen remaining strong going forward. For now, Nirmal Bang sees no material upside in earnings.

Nirmal Bang expects 4-7 per cent CC revenue growth guidance by both Infosys Ltd as well as HCL Technologies (HCL Tech) Ltd for FY25 with modestly positive demand commentary versus FY24, especially on discretionary spending.

The 2H2024 rebound hope is at risk due to US interest rates remaining higher for longer and expectations of dramatic changes in policies post US elections in November 2024 if Donald Trump wins. The announcement on large deal wins by Indian IT players have been relatively muted since September 2023, the brokerage noted.

“We persist with our ‘underweight’ stance on the IT sector as we believe that we are in a ‘slower for longer’ demand environment and the risk is for current consensus estimates to be cut rather than raised,” Nirmal Bang said.

For TCS, Nirmal Bang expects 1 per cent quarter-on-quarter (QoQ) growth in growth in constant currency (CC) terms, backed by strong order inflow of the last 12 months. The headwind will likely be continued compression in existing book of business, it said adding that TCS is likely to face cross-currency tailwind of 50 bps on QoQ basis.

“For 4QFY24, we think that EBIT margin will expand by 60 bps QoQ to 25.6 per cent. With sub-con cost already at multi-quarter lows and in line with pre-pandemic times (6.8-7 per cent), margins will improve on the back of furlough impact reversal from 3QFY24, pyramid restructuring, higher offshoring, higher utilization and driving efficiencies in discretionary expenses. We believe TCV for 4QFY24 should come in the guided range,” it said.

For Infosys, Nirmal Bang expects total contract value (TCV) in the $2-3 billion range. Things to watch out for include guidance for FY25, the timing and extent of salary hikes in FY25 and the extent of boost from the margin improvement program in FY25.

For HCL, Nirmal Bang sees TCV to come in the guided range on the back of a healthy pipeline. Nirmal Bang sees HCL Tech holding out revenue growth guidance for FY25 of 4-7 per cent in CC terms. It expects margin guidance to be similar to FY24 (18-19 per cent EBIT).

For Wipro, Nirmal sees 0.5 per cent CC QoQ revenue growth in the March quarter against minus 1.5 per cent to 0.5 per cent CC growth. guidance. One may watch out for commentary on pick up in the conversion of TCV to revenue, impact of high-profile senior management exits on the business and consulting business.

For TechM, it said: “We expect Tech Mahindra (TML) to deliver flat CC QoQ growth, which will be impacted by weakness in the CME vertical (37 per cent of sales), although slight improvements are being seen. Cross-currency tailwind will be 25 basis points

. We think there will also be some impact of the business rationalization exercise which will continue into 4QFY24 (120bps margin impact in 3QFY24). In 4QFY24, we expect TCV to be higher than the 3QFY24 TCV of $381 mn. We think the new organizational set up is just falling in place and we think under Mohit Joshi TML will be much more selective in bidding for large deals,” it said.

Here’s what the domestic brokerage expects from LTIMindtree, Coforge, Mphasis and other IT firms: