In its quarterly review on IT sector, Axis Securities said the Indian IT services industry is facing near-term challenges due to the economic slowdown and weaker macroeconomic outlook but said a quick recovery is likely in FY25 and the year may deliver strong revenue growth. Axis Securities has KPIT Technologies Ltd, Persistent Systems Ltd and Coforge Ltd as its preferred IT picks.
KPIT Tech target price
Axis Securities sees accelerating demand for digital ER&D services across industries such as Manufacturing, BFSI, Media & Technology, Retail, Healthcare Payers & Providers, and Travel & Hospitality. KPIT Technologies is developing new products and services to differentiate itself , thereby creating remarkable opportunities, Axis said.
"On the vertical front, the Passenger Car vertical grew by 6.2 per cent QoQ, demonstrating robust execution. The management is also confident in continuing the growth momentum in the near term. The strategic revenue from these clients grew by 3.9 per cent on a QoQ basis. Client concentration has also increased from 84 per cent in Q2FY24 to 85 per cent in Q3FY24," it said.
On the Services line front, Axis Securities said Feature development and integration services (90 per cent of revenue) showed a strong growth of 3.8 per cent QoQ. Cloud-based connected services (26 per cent of revenue) continue with strong growth of 9 per cent QoQ, while Architecture and Middleware consulting (29 per cent of revenue) continue to demonstrate de-growth of 6.1 per cent QoQ.
"Given the company’s strong growth potential, supported by solid deal-making and excellent execution capabilities, we assign a 47 times P/E multiple to its FY26E earnings of Rs 37.10 share to arrive at a target price of Rs 1,750 per share, implying an upside of 10 per cent.
Persistent Systems target price
Persistent Systems continues to report strong growth even during the challenging times with increasing client engagement, Axis Securities said. The TCV for the December quarter stood at $521 million and the management is confident of gaining medium-term demand momentum on the backdrop of the deals it has won in the previous quarters.
"It also expects improvement on the margin front. Strength in medium-term demand continues: The UK is seeing higher cost optimisation deals (with faster decision-making), while the European market continues to be impacted. As the macroeconomic environment stabilizes, the company expects decision making to pick up," Axis Securities said.
The majority of the verticals are likely to report further growth backed by a strong
deal pipeline in the near term. We believe Persistent is well positioned for encouraging growth given its numerous long-term contracts with the world’s leading brands. Improved revenue visibility gives us confidence in the company's continued growth. We upgrade the stock valuation from 35x FY26E earnings to 40x to its FY26E earnings, given the company’s strong growth potential, supported by solid deal-making and excellent execution capabilities," Axis Securities said.
It assigned a 40 times PE multiple to its FY26E earnings of Rs 239.10 per share to arrive at a target of Rs 9,570 per share, implying an upside of 12 per cent.
Coforge target price
Axis Securities said it is encouraged by the improved outlook and engagement with clients. TCV was strong in Q3FY24, with robust quarter-high deal wins at $354 million each in BFSI and Travel verticals.
The US is seeing higher cost optimisation deals (with faster decision-making) while the Europe market remains impacted, it said. "As the macro environment stabilises, the company expects decision-making to pick up. Coforge has also won deals across verticals indicating strong demand across geographies even during challenging times. It has strong execution capabilities and improved client engagement indicating a strengthened growth prospectus going ahead. Recently, the stock has moved up but we remained confident on the company’s growth in near future. We recommend buy on dips on the stock with the targeted price," Axis Securities said while suggesting Rs 6,905 as the target price for the stock.
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