A handful of mid and small-sized IT firms namely Birlasoft Ltd, Cyient Ltd, Coforge Ltd, L&T Technology Services Ltd (LTTS) and Zensar Technologies recently participated in at Antique’s Investor Conference: “Build India, New India, where they talked about their business verticals in details. Antique Stock Broking jotted down the key takeaways from its interaction with the IT managements.
Birlasoft
The Birlasoft management expects short-term deals to continue and that eyes are on gaining long-term deals that would specifically focus on a particular domain and also verticals as well as its expertise. Birlasoft plan is to remain focused on demand, specific domains, and verticals driving growth as well as continuing to bring in efficiency and improve utilization as it would aid in both top line and margin growth, Antique Stock Boking said.
"Along with strengthening its leadership team, the company would invest in its capabilities and remain focused on execution. The company has expanded its leadership team by hiring," it said.
Antique said the Birlasoft deal pipeline remains strong, but future signings are uncertain due to the timing of client decisions. The IT firm is looking to execute and maximise signings in the upcoming quarter. "The company is shifting towards employing more staff rather than relying on subcontractors to execute projects. Moving forward, the company intends to further decrease its reliance on subcontractors," Antique said.
Cyient
Cyient customers are increasingly recognising the need to adapt to new-age technologies and integrate them into their existing product offerings to stay competitive and meet evolving end-customer expectations. Antique said Cyient's Communication segment is expected to be a positive lead indicator going forward, as the IT firm expects recovery going ahead. The management expects the Connectivity segment to start picking up too and do better in the March quarter.
"Anticipating margin growth from ongoing cost optimization investments, the company plans to expand offshoring for further efficiency gains. The management observes increasing traction in new wins, particularly in the medical devices sector, and is actively involved in next-gen connectivity programs. Momentum is evident in network analytics and automation initiatives," it said
The Cyient management, Antique said, asserted that sustainability would serve as a catalyst for growth following transportation and aerospace, aiming to achieve expansion by boosting offshoring activities and acquiring additional entities.
"Despite the challenging macroeconomic conditions, management remains optimistic, noting some positive signs of growth. The Aerospace segment continues to demonstrate improvement, with expectations of global passenger volume surpassing 2019 levels. Manufacturing production rates are projected to increase, although challenges persist in the supply chain," it said.
The automotive segment is expected to be a growth segment for Cyient while Sustainability offers multi-year growth prospects. The Healthcare segment should see some improvement and the company is confident of achieving the 10-20 per cent growth range in the medium term. The Cyient management maintained that its expectation of revenue growth between 13 per cent and 13.5 per cent and is aiming for an EBIT margin expansion of 200 to 250 basis points in the medium term.
Coforge
Although the demand environment remains challenging, Coforge said positive signs are emerging from client discussions and the pipeline. That said, the Coforge management believes that FY25 will witness varying levels of growth among companies, with Coforge aiming to achieve top-quartile revenue growth within the sector.
On EBIT margin, the Coforge management expects a sharp 150 to 200 bps improvement in 4Q on the back of the ramp-up of new business and reversal of furloughs.
"Coforge expects the 4Q EBIT margin to be better than last year and is confident of exiting FY24 around levels similar to the last couple of years. The large-deal pipeline is strong. Revenue for next year is expected to be 1.4-1.5 times the executable order book, depending on the macro environment," it said.
Coforge is actively directing investments towards emerging sectors such as the UK public sector, healthcare, and hi-tech.
L&T Technology Services
The current market environment shows signs of improvement compared to the previous year, with customers shifting from budget cuts to extending marketing efforts, Antique said post meeting with L&T Technology Services Ltd (LTTS) management. Among LTTS' five key segments, transportation is performing well, driven by trends such as electric vehicles and software-defined solutions. While telecom is the largest segment, comprising around 30-35 per cent of the portfolio, it has faced challenges recently, especially in the semiconductor and consumer electronics space.
"However, LTTS has made progress in telecom services, particularly in orchestration, architecture, and software operations. The media and entertainment segment has seen some deals in the pipeline, but there have been challenges in closing them. However, the company remains optimistic about the medium to long-term prospects, especially considering its investments in 5G and digital capabilities," Antique Stock Broking said.
Around 25 per cent of the portfolio is exposed to semiconductors vertical. This sector faced challenges due to a build-up of inventory and fluctuations in demand post the pandemic. However, the company is optimistic about its growth potential, especially as digital transformation continues.
"LTTS reaffirmed the FY24 dollar revenue growth guidance of 17.5-18.5 per cent in constant currency, implying acceleration in growth in Q4 in the range of 4-7 per cent. The management maintained EBIT margin guidance of 17 per cent in FY24 through levers such as revenue growth, cost optimisation and productivity measures, and continues to aspire to get back to the 18 per cent level by 1HFY26," it said.
Zensar Technologies
The Zensar Technologies management foresees maintaining margin within the 14-16 per cent range, as they plan to reinvest in the business to drive growth. The adverse effects of seasonality and increased furloughs are mitigated by the positive impact of decreased discretionary spending and improved utilisation, Antique Stock Broking said.
The enterprise application segment growth was affected by furloughs and seasonal headwinds impacted revenue but the management anticipates promising volume growth in the near future.
"The management addressed concerns regarding project closure issues and the detrimental effects of furloughs, which have hindered growth within the Hi-tech vertical. Additionally, the management emphasized that three major customers within the Hi-tech sector are experiencing difficulties. Furlough impacts are expected to persist in Hi-tech during the fourth quarter. Manufacturing and Consumer services have been challenging verticals, but management anticipates some stability in the near future," Antique said.
The company’s deal pipeline remains healthy, with stability or slight improvement compared to the previous year. Client engagements are positive, with a focus on enhancing capabilities to secure larger deals and allocate resources for sales and marketing efforts, Antique said.
"There are signs of emerging opportunities that could help the company achieve its goal of achieving top-quartile growth over the next three years. The Zensar management is actively seeking acquisition opportunities, primarily in the Healthcare & Life sciences vertical, focusing on companies with Cloud and SAP capabilities," it said.
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