TCS To Infosys And Wipro — IT Margins In Focus With Target Cuts Ahead Of Results
Citi has revised down the target prices of most IT firms and given a 'neutral' rating to Infosys and HCL Technologies.
Citi Research forecasts an 8% growth in the fourth quarter of financial year 2024 for the big five information technology companies, with a focus on higher competition and a pivot towards large deals.
Margin trajectory—given limited levers and higher competition—will be the focus of the upcoming results, it said in a report dated April 1. Whether the pace of recovery could be slower than anticipated needs to be monitored, the note said.
While the total contract value and pricing trends need to be monitored, the consensus is expecting about 8% growth for the top five IT firms, the note said. "Consensus is expecting margins to improve by 90 bps."
In the March quarter, Citi expects the constant-currency revenue growth of (-)1.4% to (+)1.2% quarter-on-quarter for the top five companies despite the reversal of furloughs. The focus is likely to be on Infosys and HCLTech's revenue guidance in the new fiscal and qualitative commentary from Tata Consultancy Services Ltd.
The brokerage has revised down the target prices of most IT firms. It has given a 'neutral' rating to Infosys Ltd. and HCL Technologies Ltd., while the rest are rated 'sell'.
With its global peers having guided muted 2024 growth and hoping for a recovery in the second half, the brokerage expects a similar trend for Indian IT.
Citi On Infosys:
Expects about 3–6% constant-currency revenue growth in fiscal 2025, given visibility from mega deal wins.
Expect a margin band of 20–22%.
Citi On HCLTech
IT services revenue guidance of 6–8% growth in fiscal 2025
Expect a margin band of 18–19%.
Citi On L&T Technology Services, Coforge
The brokerage expects the two companies to guide to over 10% revenue growth for fiscal 2025, given the visibility due to the cybersecurity deal and executable order book.
The Nifty IT dropped as much as 0.7% to 34,796 during the day on Tuesday. It was trading 0.52% lower on Tuesday, dragged by L&T Technology Services and Persistent Systems. TCS, Wipro and Infosys were all down over 0.5% each as of 11:14 a.m.
