September quarter results of three tier I IT firms namely Tata Consultancy Services Ltd (TCS), Infosys Ltd and HCL Technologies Ltd were a mixed bag. While deal wins remained strong, downward revisions in revenue growth guidance by Infosys and HCL Tech mid weak discretionary client spends could lead to downgrading of consensus estimates, warned analysts, who feel expectations of a flat or show marginal growth in December quarter on a sequential basis has receded.
Q2 results
TCS reported a 8.74 per cent YoY jump profit at Rs 11,342 crore on 8 per cent YoY rise in sales at Rs 59,692 crore. Infosys logged 3 per cent rise in profit on 6.7 per cent rise in revenue at Rs 38,994 crore. HCL Tech beat the two larger peers in profit and revenue growth basis. HCL It reported 10 per cent rise in the September quarter profit on 8 per cent growth in revenue at Rs 26,673 crore. TCS saw deal wins worth $11.2 billion, Infosys $7.7 billion and HCL Tech $3.9 billion.
FY24 guidance
Infosys and HCL Technologies maintained their FY24 margin guidance but cut constant currency revenue guidance. That, despite strong deal wins. HCL Tech reduced its CC revenue growth guidance to 5-6 per cent from 6-8 per cent earlier but maintained its Ebit margin of 18-19 per cent, which analysts said is achievable. Infosys, on the other hand, lowered its upper limit of its FY24 revenue growth guidance to 1.0-2.5 per cent YoY CC from 1-3.5 per cent YoY CC earlier. TCS does not offer guidance.
Guidance Implication
In the case of HCL Tech, the revised revenue growth guidance implies 3.3-4.5 per cent compounded quarterly growth rate for the next two quarters, analysts said. Infosys’ revenue guidance implies that the IT major may report flat QoQ CC growth at the top end of the guidance in Q3 and Q4.
Analyst views
Post Q2 results, analysts stayed positive on HCL Technologies as they feel despite the guidance cut it would still remain fastest-growing tier 1 IT players. They also find HCL Tech valuation reasonable despite a 17 per cent rise in the stock year-to-date. In the case of TCS, Goldman Sachs finds the stock worth Rs 4,020. Bernstein sees at Rs 3,950, HSBC at Rs 3,625, Morgan Stanley at Rs 3,590 and Citi at Rs 3,170. In the case of Infosys, Morgan Stanley sees the stock at 1,600, Bernstein at Rs 1,580 and Nomura India at Rs 1,400.
Also read: HDFC Bank sees 46.70 lakh shares changing hands in large deal: Report
Also read: Adani-Hindenburg case: Supreme Court defers hearing; Adani stocks in red