TCS To Tech Mahindra: Why Citi Research Revises Target Price Of IT Stocks

The target price of India's top six information & technology companies has been revised by Citi Research, even as uncertainty in demand, particularly discretionary projects, continues for the sector.

Investors will likely focus on the pace of recovery and 2024 outlook, particularly after the US Federal Reserve's commentary on rates, according to a note on Monday.

Forward indicators like guidance, total contract value, comments and headcount will be keenly monitored, according to Citi. "Margins could be another focus area, with pricing and large-deal ramp-up to be monitored."

• Citi expects 9% rupee-revenue growth in the next fiscal for the top six IT companies.

• Margin trajectory may improve by 50 basis points for large-cap IT companies in 2024–25, given limited available margin levers, higher competition, and a pivot towards large deals. 

The target price for Tata Consultancy Services Ltd. has been raised to Rs 3,470 apiece from Rs 3,170 per share by Citi, but it maintains a 'sell' rating on the stock.  It has also revised the earnings-per-share estimates for fiscal 2024–26 by 0–1%.

Key upside risks include aggressive pent-up demand from corporates in the US and Europe, margin-accretive acquisition and a relative preference for IT in the Indian context. It also cited any significant depreciation of the rupee against the dollar, euro or pound.

The research firm has revised target price for Infosys Ltd. to Rs 1,695 from Rs 1,565 and maintains a 'neutral' rating on the stock. "We assign multiple of 26 times given broader rerating in the Indian market as well as the sector."

Citi raised the target price for LTIMindtree Ltd. to Rs 5,420 from Rs 4,660 while keeping its 'sell' recommendation unchanged. "We believe PE remains the most appropriate valuation measure given the profitable track record in the sector."

Wipro Ltd.'s EPS for fiscal 2024–26 has been revised by 1% to incorporate changes in exchange rate and other operational parameters. Citi revised the target price to Rs 425 from Rs 360. "Our sell recommendation remains unchanged."

Key upside risks include consistent quarterly performance, better-than-expected margin delivery and rupee depreciation.

Citi revised its EPS estimates by 0–1% to incorporate changes in exchange rate and other operational parameters. It also revised it target price to Rs 1,475 from Rs 1,295. "Our neutral rating remains unchanged."

The brokerage has revised target price on the company to Rs 1,100 from Rs 1,000 per share while maintaining its 'sell' recommendation. "We revise our FY24E–26E estimates by 1–2% to incorporate changes in exchange rate and other operational parameters."